Financial vs. strategic buyers
By: Marc Martos-Vila, Matthew Rhodes-Kropf, Jarrad Harford
Contributors: Rhodes-Kropf, Matthew, 1971- author; Harford, Jarrad V. T., author; Harvard Business School
Series: Working paper / Harvard Business School -- 12-098; Working paper (Harvard Business School) -- 12-098.
Publisher: Harvard Business School
Published: 2014
Place of publication: Boston]
Language: eng
Number of pages: 51
Description: This paper introduces the impact of debt misvaluation on merger and acquisition activity. Debt misvaluation helps explain the shifting dominance of financial acquirers (private equity firms) relative to strategic acquirers (operating companies). The effects of overvalued debt might seem limited since both acquirer types and target firms can access the debt markets. However, fundamental differences in governance and project co-insurance between the two types of acquirer interact with debt misvaluation, resulting in variation in how assets are owned that depends on debt market conditions. We find support for our theory in merger data using a novel measure of debt misvaluation.
Notes: "April 2012. (Revised April 2014.)" -- Publisher's website.

Includes bibliographical references (pages 37-41).