Financial Buyers vs. Strategic Buyers
London Business School - Department of Finance; University of California, Los Angeles (UCLA) - Finance Area
Harvard Business School - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)
University of Washington
March 23, 2013
AFA 2012 Chicago Meetings Paper
Within the great oscillations of overall merger activity there is a shifting pattern of activity between strategic (operating firms) and financial (private equity) acquirers. What are the economic factors that drive either financial or strategic buyers to dominant positions in M&A activity? We introduce debt market misvaluation in M&A activity. Debt misvaluation might seem limited since both types of acquirer (and the target) can access misvalued debt markets. However, moral hazard and insurance effect differences between types of buyers interact with potential debt misvaluation debt, leading to a dominance of financial versus strategic buyers that depends on debt market conditions.
Number of Pages in PDF File: 56
Keywords: private equity, buyout, acquisitions, moral hazard, governance, misvaluation
JEL Classification: G34
Date posted: December 15, 2010 ; Last revised: April 1, 2013
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