Do Private Equity Funds Always Pay Less? A Synergy-Related Explanation Based on Add-on Acquisitions
Series
School of Finance Working Paper Series
Type
working paper
Date Issued
2015-10
Author(s)
Wetzer, Thomas
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.
Language
English
Keywords
Private Equity
Corporate Finance
Mergers and Acquisitions
Takeover Premiums
Synergies
Add-on Acquisitions
HSG Classification
contribution to scientific community
Refereed
No
Publisher
SoF - HSG
Publisher place
St. Gallen
Number
2015/22
Subject(s)
Division(s)
Eprints ID
245439
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15_22a_Morkoetter et al_Do Private Equity Funds Always Pay Less.pdf
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Format
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