What does private equity buy? – A comparison between financial and strategic buyers in European PTP transactions 2005-2019

Abstract

This paper outlines a new approach to the takeover literature by comparing target characteristics between financial and strategic buyers in announced European Public-to-Private transactions from 2005 to 2019. We compare PE targets to non-PE targets by conducting a multivariate logistic regression model with a maximum likelihood approach. We find that PE targets exhibit higher profitability, in terms of returns on assets and equity, and lower price to book ratios compared to their strategic competitors. Hence, our results suggests that PE firms search for buyout targets which are profitable and undervalued. Moreover, this paper sheds new light on the impact of macroeconomic factors on private equity activity. By analyzing a split sample from the financial- and Euro crisis, 2008-2013, the evidence from this study intimates that relative preferences between financial and strategic buyers change during the economic cycle. We find that during crisis, compared to strategic acquirers, PE firms prefer targets with a higher debt capacity while undervalued companies are preferred during non-crisis.