Journal of Financial and Quantitative Analysis

Research Articles

It Pays to Follow the Leader: Acquiring Targets Picked by Private Equity

Amy Dittmara1, Di Lia2 and Amrita Naina3

a1, Ross School of Business, University of Michigan, 701 Tappan St, Ann Arbor, MI 48109

a2, Robinson College of Business, Georgia State University, 35 Broad St, Atlanta, GA 30303

a3, Tippie College of Business, University of Iowa, 108 Pappajohn Business Building, Iowa City, IA 52242


This paper examines the impact of financial sponsor competition on corporate buyers. We find that corporate acquirers who purchase targets that financial buyers also bid on outperform corporate acquirers who buy targets bid on by corporate firms only. Deal characteristics, acquirer abilities, and observable target characteristics cannot explain this difference in returns. Corporate acquirers have higher returns when they follow a first bid by a financial buyer rather than a first bid by another corporate buyer. The results suggest that financial bidders identify targets with high potential for value improvement and winning corporate bidders are competent in exploiting this potential.