Product Market Considerations and Private Equity Sales
Posted: 3 Jun 1998
Date Written: November 14, 1995
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
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