The Cross-Border Buyout Next Door

57 Pages Posted: 18 May 2022

See all articles by Benjamin Hammer

Benjamin Hammer

Lancaster University - Department of Accounting and Finance

Sven Mettner

HHL Leipzig Graduate School of Management

Denis Schweizer

Concordia University

Timothy E. Trombley

Illinois State University

Date Written: May 15, 2022

Abstract

Using a hand-collected sample of global office locations of private equity (PE) firms, we show that portfolio companies backed by local offices outperform cross-border buyouts in terms of operational improvements. The effect strengthens with higher cross-country cultural distance or information frictions, and with the host country’s economic policy uncertainty. Experiential learning helps cross-border buyouts catch up in the long run, whereas hiring a local professional does not serve to close the performance gap with local offices. Furthermore, local offices can even provide a competitive edge over domestic peers. However, the extent to which this is true depends on society’s level of distrust in foreigners. Our main conclusions hold for measures of buyout pricing and deal returns and are robust to several endogeneity checks. Semi-structured interviews with PE professionals support our findings and shed light on antecedents of office openings and channels for portfolio companies’ outperformance.

Keywords: Cross-border, private equity, leveraged buyout, local office, operating performance

JEL Classification: G15, G23, G24; G34

Suggested Citation

Hammer, Benjamin and Mettner, Sven and Schweizer, Denis and Trombley, Timothy E., The Cross-Border Buyout Next Door (May 15, 2022). Available at SSRN: https://ssrn.com/abstract=4110334 or http://dx.doi.org/10.2139/ssrn.4110334

Benjamin Hammer (Contact Author)

Lancaster University - Department of Accounting and Finance ( email )

Lancaster, Lancashire LA1 4YX
United Kingdom

Sven Mettner

HHL Leipzig Graduate School of Management ( email )

Jahnallee 59
Leipzig, 04109

Denis Schweizer

Concordia University ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada
+1 (514) 848-2424 ext. 2926 (Phone)
+1 (514) 848-4500 (Fax)

HOME PAGE: http://www.concordia.ca/jmsb/faculty/denis-schweizer.html

Timothy E. Trombley

Illinois State University ( email )

Normal, IL 61790
United States

HOME PAGE: http://www.timtrombley.com

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