Cross-border acquisitions and restructuring : multinational enterprises versus private equity-firms

An increasingly large share of cross-border acquisitions are undertaken by private equity-firms (PE-firms) and not by traditional multinational enterprises (MNEs). We propose a model of crossborder acquisitions in which MNEs and PE-firms compete over domestic assets. MNEs' advantage lies in firm-specific synergies and retained earnings, whereas PE-firms are good at reorganizing target firms. Prevailing interest rates do not work in favor of PE-firms, but a lower risk premium and a better financial market development does. Stronger firm-specific synergies, however, favors MNEs. Performing a welfare analysis, we show that a policy of restricting PE-firms from buying domestic assets can be counterproductive.