Selling Assets: When is the Whole Worth More Than the Sum of Its Parts?

When is it better to sell assets separately versus pooling them together? We study this issue in a setting where the number of potential buyers for an asset is endogenous and is a function not just of the costs associated with due diligence but also of the composition of the set of other possible buyers. We show that if buyers anticipate that there may be another buyer who in expectation has a higher value for the target, they will be less likely to enter since they anticipate being less likely to win, and having to pay a higher price when they do win. This reduces competition and lowers revenue for the seller of the asset. This reduction in competition, however, is different depending on how the assets are sold and is attenuated when assets are sold together relative to when they are sold separately. We characterize when this competitive effect leads the seller to prefer to sell the assets together rather than individually.

This event is an Erasmus Finance Seminar. The Erasmus Finance Seminar series brings prominent researchers in Finance from all over the world to Rotterdam.