Financial or strategic buyers: who is at the gate?

Target companies are differently affected when acquired by a financial sponsor as opposed to a strategic buyer. In this paper we analyze M&A activity by financial sponsors and strategic buyers in the euro area between 2002 and 2018, linking their relative contributions to deal flow to the conditions in capital markets. Does the composition of the M&A deal flow change over time? How do different types of acquirers respond to varying conditions in debt and equity markets? We find that M&A activity by financial sponsors and strategic buyers are not synchronous and that capital market conditions affect the composition of the M&A deal flow through multiple channels. In particular, the relative contribution of financial sponsors to overall deal flow grows when the riskfree rate increases, while the opposite occurs when the difference between the credit risk premium of high-yield and investment-grade issuers widens and when stock market valuations rise.