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Financial or strategic buyers: Who is at the gate?

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  • Chiarella, Carlo
  • Ostinelli, Diego

Abstract

Target companies are differently affected when acquired by a financial sponsor as opposed to a strategic buyer. In this paper we analyze M&A activity by financial sponsors and strategic buyers in the euro area between 2002 and 2018, linking their relative contributions to deal flow to the conditions in capital markets. Does the composition of the M&A deal flow change over time? How do different types of acquirers respond to varying conditions in debt and equity markets? We find that M&A activity by financial sponsors and strategic buyers are not synchronous and that capital market conditions affect the composition of the M&A deal flow through multiple channels. In particular, the relative contribution of financial sponsors to overall deal flow grows when the risk-free rate increases, while the opposite occurs when the difference between the credit risk premium of high-yield and investment-grade issuers widens and when stock market valuations rise.

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  • Chiarella, Carlo & Ostinelli, Diego, 2020. "Financial or strategic buyers: Who is at the gate?," International Review of Economics & Finance, Elsevier, vol. 67(C), pages 393-407.
    • Handle: RePEc:eee:reveco:v:67:y:2020:i:c:p:393-407
    DOI: 10.1016/j.iref.2020.02.005
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    More about this item

    Keywords

    Mergers and acquisitions; Leveraged buyouts; Cost of debt; Equity valuations;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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