Product Market Considerations and Private Equity Sales

95-056

Posted: 3 Jun 1998

See all articles by John J. Moon

John J. Moon

Columbia University - Columbia Business School

Tarun Khanna

Harvard University - Strategy Unit

Date Written: November 14, 1995

Abstract

We distinguish between private equity sales to non-financial acquirers and those to financial acquirers. Stock market reactions to deals involving non-financial acquirers show more value creation than reactions to deals involving financial acquirers. Further, non-financial acquirers pay a premium relative to market price for their equity stakes while financial acquirers pay a discount. We propose that non-financial acquirers might be willing to pay a premium because they earn additional benefits through concurrent product market agreements. Indeed, more than half of the deals associated with non-financial acquirers are accompanied by such product market agreements. Cross-sectional regressions allow us to verify that such agreements are a source of incremental value creation.

JEL Classification: G24

Suggested Citation

Moon, John J. and Khanna, Tarun, Product Market Considerations and Private Equity Sales (November 14, 1995). 95-056, Available at SSRN: https://ssrn.com/abstract=7414

John J. Moon

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Tarun Khanna (Contact Author)

Harvard University - Strategy Unit ( email )

Harvard Business School
Boston, MA 02163
United States
617-495-6038 (Phone)
617-495-0355 (Fax)

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