Private Equity Acquisitions and Strategic Buyers: Information Discounts versus Synergies

46 Pages Posted: 30 Jul 2019 Last revised: 18 Aug 2021

See all articles by Christian Riis Flor

Christian Riis Flor

University of Southern Denmark

Peter Norman Sorensen

University of Copenhagen - Department of Economics

Date Written: July 26, 2019

Abstract

Strategic buyers integrate with targets to obtain synergy gains and private benefits. Private equity funds cut projects generating private benefits, thereby gaining an ex ante information advantage for understanding value creation. This ex ante advantage can dominate to give private equity funds a competitive advantage over strategic buyers in acquisitions, albeit the strategic buyer's ex post value is uniformly superior. Private equity funds are more likely to win takeover competitions when their information advantage is greater, their required return premium is smaller, and strategic buyers' synergy gains are smaller. Such takeovers by private equity funds can improve economic
welfare.

Keywords: Private Equity, Takeover Competition, Information Frictions, Private Benefits, Welfare

JEL Classification: G24, G32, G34

Suggested Citation

Flor, Christian Riis and Sorensen, Peter Norman, Private Equity Acquisitions and Strategic Buyers: Information Discounts versus Synergies (July 26, 2019). Available at SSRN: https://ssrn.com/abstract=3427126 or http://dx.doi.org/10.2139/ssrn.3427126

Christian Riis Flor

University of Southern Denmark ( email )

Campusvej 55
Odense DK-5230
Denmark
+45 6550 3384 (Phone)
+45 6593 0726 (Fax)

Peter Norman Sorensen (Contact Author)

University of Copenhagen - Department of Economics ( email )

Oster Farimagsgade 5
Building 26
Copenhagen K, 1353
Denmark
+45 35 32 3056 (Phone)

HOME PAGE: http://www.econ.ku.dk/sorensen

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