The economics of club bidding and value creation

Robert Marquez, Rajdeep Singh

Research output: Contribution to journalArticlepeer-review

14 Scopus citations

Abstract

Many acquisitions are conducted by clubs, i.e., coalitions of acquirers that submit a single bid. We present a novel analysis of club bidding where the club creates value by aggregating, at least partially, bidders' values. We show that club formation can lead to higher acquisition prices when the number of bidders is exogenously fixed and large. However, when entry costs require bidders to optimize their participation decisions, club formation acts as an endogenous limit on competition and reduces the target's premium. In contrast, social efficiency with club bidding is always higher. Our findings can reconcile the contradictory evidence on club bidding.

Original languageEnglish (US)
Pages (from-to)493-505
Number of pages13
JournalJournal of Financial Economics
Volume108
Issue number2
DOIs
StatePublished - May 1 2013

Keywords

  • Club bidding
  • Joint bidding
  • Mergers and acquisitions
  • Private equity
  • Takeover auctions

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