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One size does not fit all: Selling firms to private equity versus strategic acquirers

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Author Info

  • Fidrmuc, Jana P.
  • Roosenboom, Peter
  • Paap, Richard
  • Teunissen, Tim

Abstract

This paper investigates the selling process of firms acquired by private equity versus strategic buyers. In a single regression setup we show that selling firms choose between formal auctions, controlled sales and private negotiations to fit their firm and deal characteristics including profitability, R&D, deal initiation and type of the eventual acquirer (private equity or strategic buyer). At the same time, a regression model determining the buyer type shows that private equity buyers pursue targets that have more tangible assets, lower market-to-book ratios and lower research and development expenses relative to targets bought by strategic buyers. To reflect possible interdependencies between these two choices and their impact on takeover premium, as a last step, we estimate a simultaneous model that includes the selling mechanism choice, buyer type and premium equations. Our results show that the primary decision within the whole selling process is the target firm's decision concerning whether to sell the firm in an auction, controlled sale or negotiation which then affects the buyer type. These two decisions seem to be optimal as then they do not impact premium.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Corporate Finance.

Volume (Year): 18 (2012)
Issue (Month): 4 ()
Pages: 828-848

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Handle: RePEc:eee:corfin:v:18:y:2012:i:4:p:828-848

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Web page: http://www.elsevier.com/locate/jcorpfin

Related research

Keywords: Private equity; Takeover premium; Auctions;

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References

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  1. Boone, Audra L. & Mulherin, J. Harold, 2011. "Do private equity consortiums facilitate collusion in takeover bidding?," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1475-1495.
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Cited by:
  1. Patricia Crifo & Vanina Forget & Sabrina Teyssier, 2012. "The price of unsustainability: An experiment with professional private equity investors," Working Papers hal-00757203, HAL.

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