Cross-border buyout pricing

Abstract

Using a dataset of 1149 global private equity transactions, we find that cross-border buyouts are associated with significantly higher valuation multiples than domestic ones. We attribute this finding to informational disadvantages of foreign acquirers. Consistent with this idea, we find that the spread in valuation multiples narrows when the target operates in a country with high accounting standards, when it was publicly listed prior to the buyout, and when information production is facilitated due to large firm size. Further results suggest that local partnering in a syndicate serves as an effective remedy to avoid adverse pricing effects. The spread in valuation multiples is also less pronounced for large buyout funds, presumably because they draw on sufficient organizational resources to cope with cross-border-related transaction costs.

Some key developments in international financial management

“…Nonetheless they advert that the choice of test and comparison techniques may drive the results and point out that discerning between risk, mispricing and statistical bias remains a challenge for researchers and investors. Hammer et al (2021), use a dataset of 1149 global private equity transactions to analyze cross-border buyouts. They find that significantly higher valuation multiples are observed for these transactions than for domestic ones.…”

Pricing and value creation in private equity-backed buy-and-build strategies

“…Our empirical findings are primarily related to three streams of literature. First, we add to prior studies on determinants of buyout pricing (Achleitner et al, 2011;Axelson et al, 2013;Arcot et al, 2015;Guo et al, 2011;Hammer et al, 2021). To the best of our knowledge, we are the first to document a significant relationship between B&B strategies and entry pricing.…”