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School of Business | Department of Finance | Finance | 2013
Thesis number: 13488
The dual-track harvesting strategy in private company sell-outs
Author: Kangas, Matti
Title: The dual-track harvesting strategy in private company sell-outs
Year: 2013  Language: eng
Department: Department of Finance
Academic subject: Finance
Index terms: rahoitus; financing; yrityskaupat; corporate acquisitions; listautuminen; listed companies
Pages: 118
Key terms: dual-track sell-out; IPOs; M&As; acquisition valuation; harvesting strategy

The purpose of the study is to deepen the current knowledge of the dual-track harvesting strategy and the characteristics of the dual-tracking companies as well as to test various new valuation related hypotheses. Specifically, this thesis studies whether the dual-track sell-outs tend to occur during the times of relatively hotter IPO markets than M&A markets, whether the acquisition valuation of a dual-track target is affected by the different use of proceeds objects, and the disclosure accuracy of the use of proceeds. Furthermore, the thesis examines whether the dual-track companies' acquisition valuation is affected by the company insiders' intention to dispose their secondary shares in the planned IPO, and whether the relative quantity of new primary shares planned to be offered compared to the total number of shares outstanding prior the planned offering has an impact on the subsequent sell-out valuation. Finally, this thesis retests the acquisition premium findings of the existing dual-track literature by examining whether the private and public dual-track targets are acquired at a premium compared to the matched private single-track targets that are acquired at the same year and operate in the same 2-digit SIC code industry.


The preliminary data set used in the study consists of 10,933 private and 5,011 public target acquisitions, and 6,393 successful and 2,053 withdrawn or non-completed IPOs happened in the US from January 1990 to December 2012. After locating all the dual-track sell-outs and excluding all the transactions with too few valuation data available, the final sample of public and private dual-track targets narrows to 102 and 120 acquisitions respectively. The sample and the valuation multiple data comes from the SDC Platinum, SEC EDGAR, Lexis-Nexis, and Zephyr.


The results show that dual-track sell-outs have a tendency to occur during relatively hotter IPO markets. The results are significant for public dual-tracks while the private dual-track results are parallel but not significant. The results also show that private dual-track targets that intend to invest their expected IPO proceeds into growth opportunities are acquired at higher relative valuation than dual-track targets that plan to use their IPO proceeds to other purposes. Both the univariate comparison test and regression analysis yield significant results, and the results are robust to various valuation related control variables. I also find partial support for the hypothesis that dual-track targets, whose insiders intend to dispose their secondary shares in the planned IPO, are acquired at lower premium than the dual-track companies with no such intention. Furthermore, my results provide strong support for the findings in the previous literature that the dual-track targets are acquired at premium valuation compared to matched private single-track targets. The results are robust for different regression methods, and various control variables. I find no evidence that the use of proceeds accuracy or the intended amount of new primary shares to be offered has an impact on the acquisition value of private dual-track target.
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