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It Pays to Follow the Leader: Acquiring Targets Picked by Private Equity

Published online by Cambridge University Press:  12 June 2012

Amy Dittmar ,
Di Li  and
Amrita Nain
Amy Dittmar
Affiliation:
[email protected], Ross School of Business, University of Michigan, 701 Tappan St, Ann Arbor, MI 48109
Di Li
Affiliation:
[email protected], Robinson College of Business, Georgia State University, 35 Broad St, Atlanta, GA 30303
Amrita Nain
Affiliation:
[email protected], Tippie College of Business, University of Iowa, 108 Pappajohn Business Building, Iowa City, IA 52242
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Abstract

This paper examines the impact of financial sponsor competition on corporate buyers. We find that corporate acquirers who purchase targets that financial buyers also bid on outperform corporate acquirers who buy targets bid on by corporate firms only. Deal characteristics, acquirer abilities, and observable target characteristics cannot explain this difference in returns. Corporate acquirers have higher returns when they follow a first bid by a financial buyer rather than a first bid by another corporate buyer. The results suggest that financial bidders identify targets with high potential for value improvement and winning corporate bidders are competent in exploiting this potential.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 47 , Issue 5 , October 2012 , pp. 901 - 931
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2012

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