【公开学术报告】The Art of Acquisition: PEs versus Corporate Acquirers During Political Uncertainty

The Art of Acquisition: PEs versus Corporate Acquirers During Political Uncertainty

Guest Speaker:    Gianni De Bruyn(University of South Carolina)

Date & Time:       9:30-11:00 (Beijing Time), Wed. 9^th, Oct. 2024

Zoom Meeting:   845 228 78102 (Password: 212714)

Click the Link:    https://us02web.zoom.us/j/84522878102

INTRODUCTION

Cross border acquisitions (CBAs) are subject to challenges arising from operating in different institutions, relative to the home country (Bertrand, Betschinger, & Settles, 2016; Fieberg, Lopatta, Tammen, & Tideman, 2021; Krasner, 2002). However, evidence regarding the direction and magnitude of these effects or inconsistent (Cuervo-Cazurra & Genc, 2008; García-Canal & Guillén, 2008; Yasuda & Kotabe, 2021), indicating important heterogeneity in foreign acquirors’ target selection decisions (Duanmu, 2014; Holburn & Zelner, 2010; Makino & Tsang, 2011). A potential reason is that the source of uncertainty arising from different institutions themselves are not homogenous, with different origins leading to different types of uncertainty (Dorobantu, Kaul, & Zelner, 2017).

A key distinction is whether the institutions are at the national or supranational level (Hartmann, Lindner, Müllner, & Puck, 2022). Where national institutions are constraint by state borders and supranational institutions surpass borders and reside at the superordinate level (Hartmann et al., 2022; O’Brien & Williams, 2016). National-level institutional uncertainty often arises from a lack of familiarity with host institutions and on how to handle opportunistic actors (Williamson, 1975), whereas supranational-level uncertainty is often rooted in realist fears, leading to protectionist policies (Han, Lukoianove, Zhao, & Liu, 2024; Luo, 2022; Luo & Van Assche, 2023). Given the different types of institutional uncertainty, different types of acquirors might be better able to handle one type of uncertainty better than the other (Cuervo-Cazurra & Genc, 2008; Yasuda & Kotabe, 2021), causing inconsistent findings in the literature.

We argue that Private Equity acquirors (PE) have unique characteristics (Castellaneta & Gottschalg, 2016; Korteweg & Sorensen, 2017) that differentiate them from corporate acquirors (CA) in their ability to handle uncertainty (Edmans, 2009) arising from institutional differences, influencing their target selection (Kaul, Nary, & Singh, 2018; Nary & Kaul, 2021). Specifically, because CA are more likely to internalize market transactions when faced with uncertainty compared to PEs, they are better able to avoid increased costs. Therefore, targets located in a host country with different national institutions are more likely to be acquired by a CA than a PE. In contrast, when supranational uncertainty originates from realist fears, the foreign acquiror that internalizes and takes transactions out of the market, is more likely to induce fears and become the target of protectionist policies or attacks (O’Brien & Williams, 2016). Therefore, targets located in a host country for which poor supranational institutions exist with the acquiror’s home country are more likely to be acquired by a PE than a CA.

In addition, we also argue that because PEs are more likely to invest in learning capabilities associated with acquisitions (Reuer & Sakhartov, 2021), they will extract more knowledge from a single learning event than CAs. This allows them to reduce uncertainty at a greater rate (Li, Vertinsky, & Li, 2014; Meuleman & Wright, 2011), resulting in a weakening of the negative effect on PE acquisition at the national level, and a strengthening of the positive effect on PE acquisition at the supranational level.

Understanding these nuanced differences regarding the level of institutional differences and the type of foreign acquiror are important for two reasons. First, given recent trends in weakening international relations and deglobalization (Phan, 2019; Witt, 2019), international investments such as CBAs have become increasingly complex (Luo, 2022; Napier, Knight, Luo, & Delios, 2023). Second, the growing importance of the PE acquisition phenomena (MacArthur & Dessard, 2020; McKinsey & Company, 2020; Preqin, 2019), and the tendency of other types of acquirors to invest in PEs (Johan, Knill, & Mauck, 2013) makes PE acquirors an additional and unique, but under investigated type of foreign acquiror.