Financial Buyers vs. Strategic Buyers

56 Pages Posted: 15 Dec 2010 Last revised: 1 Apr 2013

Marc Martos-Vila

London Business School - Department of Finance; University of California, Los Angeles (UCLA) - Finance Area

Matthew Rhodes-Kropf

Harvard Business School - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

Jarrad Harford

University of Washington

Date Written: March 23, 2013

Abstract

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

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

Marc Martos-Vila (Contact Author)

London Business School - Department of Finance ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States

Matthew Rhodes-Kropf

Harvard Business School - Entrepreneurial Management Unit ( email )

Soldiers Field Road
Rock Center 312
Boston, MA 02163
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jarrad Harford

University of Washington ( email )

Box 353226
Seattle, WA 98195-3226
United States
206-543-4796 (Phone)
206-543-7472 (Fax)

HOME PAGE: http://faculty.washington.edu/jarrad/

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