Abstract
We provide the first evidence on the performance of private operating firms as acquirers. Private bidders experience greater post-acquisition operating performance improvements compared to public bidders. This effect is not due to differences in target types, merger accounting, financing constraints, private equity ownership or subsequent listing of some private bidders, and is robust to instrumentation. Further analysis of governance arrangements at least partially attributes the private bidder effect to lower agency costs in private firms. Not only do private firms pay lower prices for target firm assets, they also operate them more efficiently by containing overhead costs and capital expenditures.
•Private bidders experience greater operating performance changes around takeovers compared to public bidders.•This is not driven by differences in target types, merger accounting, financing constraints, or private equity ownership.•The effect is concentrated among private bidders whose governance arrangements suggest lower agency costs.•Private bidders pay lower transaction multiples and generate higher operating efficiencies through lower SG&A and CAPEX.