An increasingly large share of cross-border acquisitions are undertaken by private equity-ﬁrms (PEﬁrms) and not by traditional multinational enterprises (MNEs). We propose a model of cross-border acquisitions in which MNEs and PE-ﬁrms compete over domestic assets and that incorporates endogenous ﬁnancial frictions. MNEs’ advantages lies in ﬁrm-speciﬁc synergies and access to internal capital markets, whereas PE-ﬁrms are good at reorganizing target ﬁrms. We show that stronger ﬁrm-speciﬁc synergies, lower restructuring advantages for PE-ﬁrms, higher exit costs for PE-ﬁrms, better access to internal capital markets, a higher risk premium on lending, higher moral hazard problems, and higher trade costs all favor MNEs over PE-ﬁrms. We also present cross-country correlations that are consistent with these predictions.
European Economic Review
Cross–Border Acquisitions and restructuring: Multinational Enterprises and Private Equity Firms
Scientific Article in English