Team Bidding by Private Equity Sponsors: Are the Antitrust Allegations Plausible?

Forthcoming in the Journal of Applied Finance

25 Pages Posted: 9 Jun 2012 Last revised: 22 Jun 2014

See all articles by Robert Comment

Robert Comment

affiliation not provided to SSRN

Multiple version iconThere are 3 versions of this paper

Date Written: July 22, 2012

Abstract

The dozen largest private equity firms are accused of bid-rigging in the M&A market due to the practice of team bidding in groups known as clubs or consortia. Comparatively low offer premiums are unsurprising in low-synergy mergers and no conspiracy theory is needed to explain why financial buyers might pay lower offer premiums than strategic buyers, so Occam’s razor seems applicable here. In a multiple regression using a sample of 2,023 cash-only purchases of U.S. public companies during 1998-2011, including 85 by teams of private equity sponsors, team bidding is associated with a differential average offer premium of zero. The antitrust allegations are implausible because (1) the segments of the M&A market that are dominated by private equity firms are among the most competitive of all when competition is measured by the number of prospective buyers that sign confidentiality agreements or by whether a sale process culminates in an auction, (2) a selling company’s permission generally is required before prospective buyers can team up and (3) the differential average offer premium paid by teams of private equity sponsors is zero.

Keywords: Private Equity, Antitrust, Auction, Bidding, Merger, Offer Premiums

JEL Classification: D44, G34

Suggested Citation

Comment, Robert, Team Bidding by Private Equity Sponsors: Are the Antitrust Allegations Plausible? (July 22, 2012). Forthcoming in the Journal of Applied Finance, Available at SSRN: https://ssrn.com/abstract=2079789 or http://dx.doi.org/10.2139/ssrn.2079789

Robert Comment (Contact Author)

affiliation not provided to SSRN

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
158
Abstract Views
1,317
Rank
237,449
PlumX Metrics