It Pays to Follow the Leader: Acquiring Targets Picked by Private Equity
59 Pages Posted: 19 Dec 2008 Last revised: 3 Jun 2013
Date Written: December 18, 2008
This paper examines the impact of financial sponsor competition on corporate buyers. We find that corporate acquirers who purchase targets that financial buyers also bid on outperform corporate acquirers who buy targets bid on by corporate firms only. Deal characteristics, acquirer abilities, and observable target characteristics cannot explain this difference in returns. Corporate acquirers have higher returns when they follow a first bid by a financial buyer rather than a first bid by another corporate buyer. The results suggest that financial bidders identify targets with high potential for value improvement and winning corporate bidders are competent in exploiting this potential.
Keywords: mergers, acquisitions, private equity, competition
JEL Classification: G34, G24, G32, G12
Suggested Citation: Suggested Citation