It Pays to Follow the Leader: Acquiring Targets Picked by Private Equity

59 Pages Posted: 19 Dec 2008 Last revised: 3 Jun 2013

See all articles by Amy K. Dittmar

Amy K. Dittmar

University of Michigan at Ann Arbor - The Stephen M. Ross School of Business

Di Li

University of Michigan - The Stephen M. Ross School of Business

Amrita Nain

University of Iowa - Henry B. Tippie College of Business

Date Written: December 18, 2008

Abstract

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

Dittmar, Amy and Li, Di and Nain, Amrita, It Pays to Follow the Leader: Acquiring Targets Picked by Private Equity (December 18, 2008). Journal of Financial and Quantitative Analysis (JFQA), Vol. 47, No. 5, 2012. Available at SSRN: https://ssrn.com/abstract=1317829 or http://dx.doi.org/10.2139/ssrn.1317829

Amy Dittmar (Contact Author)

University of Michigan at Ann Arbor - The Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-764-3108 (Phone)

HOME PAGE: http://webuser.bus.umich.edu/adittmar/

Di Li

University of Michigan - The Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Amrita Nain

University of Iowa - Henry B. Tippie College of Business ( email )

Acquisitions
5020 Main Library
Iowa City, IA 52242-1000
United States

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