Acquisitions of private targets: the unique shareholder wealth implications

Abstract

Acquisitions of privately-held targets provide unique shareholder wealth implications which prior studies have not addressed. This study provides a comparative analysis of private versus public target takeovers, including differences in merger motivations, method of payment inferences, shareholder wealth effects, and the factors driving these wealth changes. The results show that acquirer wealth gains in private target takeovers exceed those in public target takeovers, with large private targets being the key contributors to wealth gains. Acquirer gains do not appear to come at the expense of private target gains. These findings highlight the importance of target ownership in influencing the shareholder wealth changes in takeovers.

Notes

See Asquith et al. (1983), Wansley et al. (1983), Travlos (1987), Huang and Walkling (1987), Franks and Harris (1989), among others.

For example, Morck et al., 1990; Healy et al.,1992; Lang and Stulz, 1994; Berger and Ofek, 1995; Comment and Jarrell 1995; John and Ofek, 1995.)

Information on ownership structure used in the private target takeover regressions was not available for many bidder firms as well, which lead to a sample of 1189 for the regression models that include bidder ownership variables.

For example, a family-run private business may want to understate the firm's book value of equity in order to get a lower valuation in assessing estate taxes.

The standard market model was used to calculate abnormal returns for acquirers. The sample of mergers used in this return analysis consists of those acquirers that had sufficient return data on CRSP to calculate abnormal returns based on a 250-day estimation period.

See, for example, Bradley et al. (1988), Asquith et al. (1983) and Smith and Kim (1994).

See Hansen (1987), Travlos (1987), Amihud et al. (1990), Brown and Ryngaert (1991) and Servaes (1991).

Note that the dependent variable in Table 5 is the transaction value divided by target sales. Thus, the size measure used in these regressions is transformed slightly from the RELSIZE used in Table 4, so that the same numerator (transaction value) is not used for the dependent variable and one of the independent variables. Instead, SIZE is measured as the natural log of the transaction value divided by the natural log of the bidder's market value.