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Buying to Sell: Private Equity Buyouts and Industrial Restructuring

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  • Persson, Lars
  • Norbäck, Pehr-Johan
  • TÃ¥g, Joacim
Abstract
We investigate how temporary ownership by private equity firms affects industry structure, competition and welfare. Temporary ownership leads to strong investment incentives because equilibrium resale prices are determined partly by buyers' incentives to block rivals from obtaining assets. These strong incentives benefit consumers, but harm rivals in the industry. Evaluating optimal antitrust policy, we point out that an active private equity market can aid antitrust authorities by triggering welfare enhancing mergers and by preventing concentration in the industry. By spreading costs of specializing in restructuring over multiple markets, private equity firms have stronger incentives than incumbents to invest in acquiring specialized restructuring skills.

Suggested Citation

  • Persson, Lars & Norbäck, Pehr-Johan & TÃ¥g, Joacim, 2012. "Buying to Sell: Private Equity Buyouts and Industrial Restructuring," CEPR Discussion Papers 8992, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:8992
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    Cited by:

    1. Baziki, Selva Bahar & Norbäck, Pehr-Johan & Persson, Lars & Tåg, Joacim, 2017. "Cross-border acquisitions and restructuring: Multinational enterprises and private equity-firms," European Economic Review, Elsevier, vol. 94(C), pages 166-184.
    2. Tåg, Joacim, 2010. "The Real Effects of Private Equity Buyouts," Working Paper Series 851, Research Institute of Industrial Economics.
    3. Norbäck, Pehr-Johan & Persson, Lars & Tåg, Joacim, 2018. "Does the debt tax shield distort ownership efficiency?," International Review of Economics & Finance, Elsevier, vol. 54(C), pages 299-310.
    4. Persson, Lars & Norbäck, Pehr-Johan & Tåg, Joacim, 2013. "Acquisitions, Entry, and Innovation in Network Industries," CEPR Discussion Papers 9585, C.E.P.R. Discussion Papers.
    5. Magnus Henrekson & Tino Sanandaji, 2018. "Stock option taxation and venture capital activity: a cross-country study," Venture Capital, Taylor & Francis Journals, vol. 20(1), pages 51-71, January.
    6. Scheuplein, Christoph, 2020. "Wer kommt, wenn Private Equity geht? Langfristige Wirkungen auf die Eigentümerstruktur deutscher Unternehmen," Forschung Aktuell 10/2020, Institut Arbeit und Technik (IAT), Westfälische Hochschule, University of Applied Sciences.

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    More about this item

    Keywords

    Antitrust; Competition policy; Leveraged buyouts; Mergers and acquisitions; Private equity; Temporary ownership;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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