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Buying to Sell: A Theory of Buyouts

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  • Norbäck, Pehr-Johan

    ()
    (Research Institute of Industrial Economics (IFN))

  • Persson, Lars

    ()
    (Research Institute of Industrial Economics (IFN))

  • Tåg, Joacim

    ()
    (Research Institute of Industrial Economics (IFN))

Abstract

Private equity owned firms have more leverage, more intense compensation contracts, and higher productivity than comparable firms. We develop a theory of buyouts in oligopolistic markets that explains these facts. Private equity firms are more aggressive in inducing restructuring compared to incumbents since they maximize a trade sale price. The equilibrium trade sale price increases in restructuring not only by increasing the profit of the acquirer, but also by decreasing the profits of non-acquiring firms. Predictions on the exit mode and on when private equity firms can outbid incumbents in the market for corporate control are also derived.

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Bibliographic Info

Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 817.

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Length: 36 pages
Date of creation: 02 Jan 2010
Date of revision:
Handle: RePEc:hhs:iuiwop:0817

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Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Phone: +46 8 665 4500
Fax: +46 8 665 4599
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Web page: http://www.ifn.se/
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Keywords: Acquisitions; Buyouts; Buy-to-sell; Buy-to-keep; Leveraged buyouts; Private equity; Take-overs; Temporary ownership;

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References

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Cited by:
  1. Tåg, Joacim, 2010. "The Real Effects of Private Equity Buyouts," Working Paper Series 851, Research Institute of Industrial Economics.

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