Cross-Border Buyout Pricing
Journal of Business Economics, Vol. 91, July 2021, Pages 705-731
42 Pages Posted: 27 Aug 2020 Last revised: 22 Feb 2022
Date Written: December 10, 2020
Using a dataset of 1,149 global private equity transactions, we find that cross-border buyouts are associated with significantly higher valuation multiples than domestic ones. We attribute this finding to informational disadvantages of foreign acquirers. Consistent with this idea, we find that the spread in valuation multiples becomes smaller when the target operates in a country with high accounting standards, when it was publicly listed prior to the buyout, and when information production is facilitated due to large firm size. Further results suggest that local partnering in a syndicate serves as an effective remedy to avoid adverse pricing effects. The spread in valuation multiples is also less pronounced for large buyout funds, presumably because they draw on sufficient organizational resources to cope with cross-border-related transaction costs.
Keywords: Private equity, leveraged buyout, cross-border, liability of foreignness, valuation
JEL Classification: G23, G24, G34
Suggested Citation: Suggested Citation