Working Paper No. 817

Buying to Sell: A Theory of Buyouts

Published: January 2, 2010, revised August 23, 2010Pages: 36Keywords: Acquisitions; Buyouts; Buy-to-sell; Buy-to-keep; Leveraged buyouts; Private equity; Take-overs; Temporary ownershipJEL-codes: G24; G32; G34; L1; L2

Buying to Sell: A Theory of Buyouts Pehr-Johan Norbäck, Lars Persson and Joacim Tåg


Private equity firms are an important part of the industrial restructuring process. We argue that the key is temporary ownership. Buying to sell induces aggressive restructuring since the equilibrium trade sale price increases both because the profits of the acquiring incumbent increase and the profits of non-acquiring incumbents decrease. Therefore, private equity backed firms are more leveraged and have managers with more ownership as compared to incumbents. By being outsiders, private equity firms specialize in restructuring to outbid incumbents with incentives to preemptively acquire targets. Welfare effects of buyouts are ambiguous, but consumers gain from a buyout.

Pehr-Johan Norbäck

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Joacim Tåg

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Ph: +46 8 665 4524
joacim.tag@ifn.se

Integrating Immigrants into the Nordic Labour Markets

An Overall Perspective

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Denmark, Finland, Norway and Sweden face similar problems of integrating large groups of immigrants, especially low-educated ones from outside the EU, into their labour markets. In this volume, edited by Lars Calmfors, IFN, and Nora Sánchez Gassen in cooperation with researchers from across the Nordic Region analyse how labour market integration of immigrants can be promoted. 

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