Do Private Equity Funds Always Pay Less? A Synergy-Related Explanation Based on Add-on Acquisitions

Item Type Monograph (Working Paper)
Abstract We assess the pricing of transactions undertaken by private equity (PE) funds in comparison to the transactions of strategic acquirers and sellers and focus on synergy gains as an explanatory factor. Controlling for company and deal characteristics, we show that PE funds pay 20% less, on average, than strategic buyers for comparable target corporations (we refer to this as the PE discount). Supplementing the existing literature on the PE discount in M&A transactions, we show that in add-on transactions, this PE discount disappears. When PE funds benefit from synergies, they are willing to pay the same price level as strategic acquirers would do in comparable transactions. In line with this synergy-related explanation, we find that PE funds sell their portfolio companies to strategic acquirers at prices comparable to those of strategic sellers. In divestitures to other PE funds (secondary deals), the PE discount prevails.
Authors Morkötter, Stefan & Wetzer, Thomas
Language English
Keywords Private Equity, Corporate Finance, Mergers and Acquisitions, Takeover Premiums, Synergies, Add-on Acquisitions
Subjects business studies
HSG Classification contribution to scientific community
Refereed No
Date October 2015
Publisher SoF - HSG
Place of Publication St. Gallen
Series Name School of Finance Working Paper Series
Number 2015/22
Depositing User Prof. Dr. Stefan Morkötter
Date Deposited 17 Nov 2015 11:41
Last Modified 20 Jul 2022 17:26


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Morkötter, Stefan & Wetzer, Thomas: Do Private Equity Funds Always Pay Less? A Synergy-Related Explanation Based on Add-on Acquisitions. School of Finance Working Paper Series, 2015, 2015/22.

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