Private Equity Acquisitions and Strategic Buyers: Information Discounts versus Synergies

Christian Riis Flor, Peter Norman Sørensen

Research output: Contribution to conference without publisher/journalPaperResearchpeer-review

Abstract

We characterize when private equity funds have a competitive advantage over strategic buyers in acquiring a target firm. Using their skill to
mitigate informational frictions, private equity funds cut loss-making projects,
potentially merge the target with similarly restructured firms, and exercise
growth options. Instead, a strategic buyer integrates with the target to obtain
a better competitive position. The private equity fund is more likely to win the
takeover competition when its information skill is greater, its required return
premium is smaller, and the strategic buyer’s synergy gains are smaller. Such
takeovers by private equity funds improve economic welfare.
Original languageEnglish
Publication date2019
Number of pages44
Publication statusPublished - 2019
Event 27th Finance Forum - Madrid, Spain
Duration: 11. Jul 201912. Jul 2019

Conference

Conference 27th Finance Forum
CountrySpain
CityMadrid
Period11/07/201912/07/2019

Keywords

  • Information Frictions
  • Posterior Beliefs
  • Takeover Competition
  • Welfare

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