One Size Does Not Fit All: Selling Firms to Private Equity Versus Strategic Acquirers

Journal of Corporate Finance, Forthcoming

54 Pages Posted: 3 Jul 2012

See all articles by Jana P. Fidrmuc

Jana P. Fidrmuc

Warwick Business School - Finance Group

Peter Roosenboom

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM)

Richard Paap

Erasmus University Rotterdam (EUR) - Department of Econometrics; Tinbergen Institute; Erasmus Research Institute of Management (ERIM)

Tim Teunissen

affiliation not provided to SSRN

Date Written: May 15, 2012

Abstract

This paper investigates the selling process of firms acquired by private equity versus strategic buyers. In a single regression setup we show that selling firms choose between formal auctions, controlled sales and private negotiations to fit their firm and deal characteristics including profitability, R&D, deal initiation and type of the eventual acquirer (private equity or strategic buyer). At the same time, a regression model determining the buyer type shows that private equity buyers pursue targets that have more tangible assets, lower market-to-book ratios and lower research and development expenses relative to targets bought by strategic buyers. To reflect possible interdependencies between these two choices and their impact on takeover premium, as a last step, we estimate a simultaneous model that includes the selling mechanism choice, buyer type and premium equations. Our results show that the primary decision within the whole selling process is the target firm's decision concerning whether to sell the firm in an auction, controlled sale or negotiation which then affects the buyer type. These two decisions seem to be optimal as then they do not impact premium.

Keywords: private equity, takeover premium, auctions

JEL Classification: G32, G34

Suggested Citation

Fidrmuc, Jana P. and Roosenboom, Peter and Paap, Richard and Teunissen, Tim, One Size Does Not Fit All: Selling Firms to Private Equity Versus Strategic Acquirers (May 15, 2012). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2098939

Jana P. Fidrmuc (Contact Author)

Warwick Business School - Finance Group ( email )

Warwick Business School
Coventry CV4 7AL
United Kingdom

Peter Roosenboom

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T09-56
3000 DR Rotterdam
Netherlands
+31 10 40 82255 (Phone)

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Richard Paap

Erasmus University Rotterdam (EUR) - Department of Econometrics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tim Teunissen

affiliation not provided to SSRN ( email )

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