Working Paper Series
No 817:
Buying to Sell: A Theory of Buyouts
Pehr-Johan Norbäck ()
, Lars Persson ()
and Joacim Tåg ()
Abstract: Private equity owned firms have more leverage, more
intense compensation contracts, and higher productivity than comparable
firms. We develop a theory of buyouts in oligopolistic markets that
explains these facts. Private equity firms are more aggressive in inducing
restructuring compared to incumbents since they maximize a trade sale
price. The equilibrium trade sale price increases in restructuring not only
by increasing the profit of the acquirer, but also by decreasing the
profits of non-acquiring firms. Predictions on the exit mode and on when
private equity firms can outbid incumbents in the market for corporate
control are also derived.
Keywords: Acquisitions; Buyouts; Buy-to-sell; Buy-to-keep; Leveraged buyouts; Private equity; Take-overs; Temporary ownership; (follow links to similar papers)
JEL-Codes: G24; G32; G34; L10; L20; (follow links to similar papers)
36 pages, January 2, 2010
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