Acquisitions by financial versus strategic buyers: Interest, competition, and persistence during the private bidding process

Abstract

We explore how target firm attributes affect the interest of financial versus strategic bidders in the private stages of a corporate takeover process. Using a unique set of hand-collected data from 606 US public deals from 2005 to 2016, we demonstrate the difference between strategic and financial bidder attraction from deal initiation onwards, as such unaffected by deal process characteristics or pricing strategies. Our results indicate that the target firm’s sales growth rate, cash flow generation, and technological innovation are found to influence financial versus strategic bidder interest from the start of the private process, whereas industry outperformance, market-to-book, and leverage seem to particularly affect the persistence of financial bidders throughout the deal process. In general, targets with stand-alone value-improving potential and opportunities to exploit financial leverage benefits are more likely to attract financial buyers while targets with probable synergy gains appeal more to strategic bidders.