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One size Does Not Fit All: Selling Firms to Private Equity Versus Strategic Acquirers

Author

Listed:
  • : Jana P. Fidrmuc
  • Peter Roosenboom
  • Richard Paap
  • Tim Teunissen

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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Suggested Citation

  • : Jana P. Fidrmuc & Peter Roosenboom & Richard Paap & Tim Teunissen, 2012. "One size Does Not Fit All: Selling Firms to Private Equity Versus Strategic Acquirers," Working Papers wpn12-02, Warwick Business School, Finance Group.
  • Handle: RePEc:wbs:wpaper:wpn12-02
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    File URL: http://web.warwick.ac.uk/fac/soc/financeRepec/Repec/2012/FidrmucRoosenboomPappaTeunissen2012OSDNFA.pdf
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    References listed on IDEAS

    as
    1. Boone, Audra L. & Harold Mulherin, J., 2008. "Do auctions induce a winner's curse? New evidence from the corporate takeover market," Journal of Financial Economics, Elsevier, vol. 89(1), pages 1-19, July.
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    Citations

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    Cited by:

    1. Morkoetter, Stefan & Wetzer, Thomas, 2015. "Conflicts of Interest and the Role of Financial Advisors in M&A Transactions: Empirical Evidence from the Private Equity Industry," Working Papers on Finance 1515, University of St. Gallen, School of Finance, revised Apr 2017.
    2. Chira, Inga & Volkov, Nikanor, 2017. "The choice of sale method and its consequences in mergers and acquisitions," The Quarterly Review of Economics and Finance, Elsevier, vol. 63(C), pages 170-184.
    3. Crifo, Patricia & Forget, Vanina D. & Teyssier, Sabrina, 2015. "The price of environmental, social and governance practice disclosure: An experiment with professional private equity investors," Journal of Corporate Finance, Elsevier, vol. 30(C), pages 168-194.
    4. Gino Loyola & Yolanda Portilla, 2016. "A Bargaining Model of Friendly and Hostile Takeovers," International Review of Finance, International Review of Finance Ltd., vol. 16(2), pages 291-306, June.
    5. Cheng-Few Lee & Woan-lih Liang & Fu-Lai Lin & Yating Yang, 2016. "Applications of simultaneous equations in finance research: methods and empirical results," Review of Quantitative Finance and Accounting, Springer, vol. 47(4), pages 943-971, November.
    6. Schneck, Colin & Bessler, Wolfgang & Zimmermann, Jan, 2014. "Bidder Contests in International Mergers and Acquisitions: The Impact of Toeholds, Preemptive Bidding, and Termination Fees," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100493, Verein für Socialpolitik / German Economic Association.
    7. Morkoetter, Stefan & Wetzer, Thomas, 2015. "Do Private Equity Funds Always Pay Less? A Synergy-Related Explanation Based on Add-on Acquisitions," Working Papers on Finance 1522, University of St. Gallen, School of Finance, revised Sep 2016.
    8. Bessler, Wolfgang & Schneck, Colin & Zimmermann, Jan, 2015. "Bidder contests in international mergers and acquisitions: The impact of toeholds, preemptive bidding, and termination fees," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 4-23.
    9. Schlingemann, Frederik & Wu, Hong, 2015. "Determinants and shareholder wealth effects of the sales method in acquisitions," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 469-485.
    10. Patricia Crifo & Vanina Forget & Sabrina Teyssier, 2012. "The price of unsustainability: An experiment with professional private equity investors," Working Papers hal-00757203, HAL.

    More about this item

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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