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

See all articles by Benjamin Hammer

Benjamin Hammer

Lancaster University - Department of Accounting and Finance

Nils Janssen

HHL Leipzig Graduate School of Management

Bernhard Schwetzler

HHL Leipzig Graduate School of Management - Department of Finance

Date Written: December 10, 2020

Abstract

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

Hammer, Benjamin and Janssen, Nils and Schwetzler, Bernhard, Cross-Border Buyout Pricing (December 10, 2020). Journal of Business Economics, Vol. 91, July 2021, Pages 705-731, Available at SSRN: https://ssrn.com/abstract=3657027 or http://dx.doi.org/10.2139/ssrn.3657027

Benjamin Hammer (Contact Author)

Lancaster University - Department of Accounting and Finance ( email )

Lancaster, Lancashire LA1 4YX
United Kingdom

Nils Janssen

HHL Leipzig Graduate School of Management ( email )

Jahnallee 59
Leipzig, 04109

Bernhard Schwetzler

HHL Leipzig Graduate School of Management - Department of Finance ( email )

Jahnallee 59
D-04109 Leipzig
Germany
+49-341-9851-685 (Phone)
+49-341-9851-689 (Fax)

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