Publication date: Available online 13 November 2019
Source: Finance Research Letters
Author(s): Shaojie Lai, Xiaoling Pu
Abstract
Comparing acquisition premium paid by private equity (PE) and non-PE bidders, we find that PE bidders offer significantly lower premium. Using short interest as a market misvaluation measure, we find that lower premium from PE bidders is associated with larger market misvaluation of the targets. In addition, we use a multiples-based market-to-book decomposition of Rhodes-Kropf, Robinson, and Viswanathan (RKRV, 2005), and find that private equity bidders would adjust acquisition premium based on firm level misvaluation and the long-term growth value of the targets. Our results suggest that the skill of private equity bidders play an important role in acquisitions.