| HBS Working Paper Series
Financial vs. Strategic Buyers
Within the great oscillations of overall merger activity there is a shifting pattern of activity between strategic (operating firms) and financial (private equity) acquirers. What are the economic factors that drive either financial or strategic buyers to dominant positions in M&A activity? We introduce debt market misvaluation in M&A activity. Debt misvaluation might seem limited since both types of acquirer (and the target) can access misvalued debt markets. However, moral hazard and insurance effect differences between types of buyers interact with potential debt misvaluation debt, leading to a dominance of financial versus strategic buyers that depends on debt market conditions.
Mergers and Acquisitions;
Martos-Vila, Marc, Matthew Rhodes-Kropf, and Jarrad Harford. "Financial vs. Strategic Buyers." Harvard Business School Working Paper, No. 12–098, April 2012. (Revise and Resubmit Journal of Finance.)