56 Pages Posted: 15 Dec 2010 Last revised: 1 Apr 2013
Date Written: March 23, 2013
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.
Keywords: private equity, buyout, acquisitions, moral hazard, governance, misvaluation
JEL Classification: G34
Suggested Citation: Suggested Citation
Martos-Vila, Marc and Rhodes-Kropf, Matthew and Harford, Jarrad, Financial Buyers vs. Strategic Buyers (March 23, 2013). AFA 2012 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1725031 or http://dx.doi.org/10.2139/ssrn.1725031