eThesis - School of Business electronic theses

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PRIVATE COMPANY DISCOUNTS IN MERGERS AND ACQUISITIONS Evidence from U.S.A

Purpose of the thesis

The purpose of this thesis is to examine whether privately held companies are on average sold at a discount compared to publicly traded peer companies, and whether the possible discounts can be explained by factors related to company size, performance, industry it operates or acquisition time.

Data

The research sample consists of U.S. based acquisitions between the years 1989 and 2008. The initial sample consists 23,872 companies, from which is sorted the final sample of 242 companies. The final sample consists 121 acquisition pairs of where the acquisitions have similar characters.

Research Methods

The research design involves calculating four valuation multiples for each acquisition in order to determine valuation differences and the possible private company discount. Further on these valuation differences are studied with multiples regression models that include variables related to company’s status, size, performance, industry, and acquisition time.

Results

The results suggest that privately held companies, on average, are sold at a lower price compared to publicly traded peer companies. Company’s Net assets, Net debt and acquisition time can partly explain these transaction price differences.