Acquisitions: Private versus Public

Abstract

"Takeovers of privately held companies represent more than 80% of all takeovers. Despite their significance, studies of such takeovers and their impact on the wealth of shareholders are rare. Using a very large, near exhaustive, sample of listed and privately held UK targets we examine the impact of such takeovers on the risk adjusted return of listed UK acquirers over the period 1981 to 2001. Acquirers earn significant positive returns during the period surrounding the bid announcement although the gains are dependent on target status, mode of payment, and the relative size of those involved. The much quoted conclusion, derived from the experiences of listed firm bidders that the shareholders of acquiring firms fail to gain from takeovers, cannot be generalised. Acquiring a privately held company is an attractive option for maximising shareholder wealth". Copyright Blackwell Publishers Ltd, 2006.

What drives acquisitions?

“…13 This result is in line with the evidence of Chang (1998), Fuller, Netter andStegemoller (2002) and Doukas and Petmezas (2007) who document substantial gains in acquisitions of privately held firms. Consistent with the U.S. evidence, U.K. studies (Draper and Paudyal (2006), among others) report negative and significant bidder abnormal returns for public acquisitions surrounding merger announcements. 14 For further discussion see Fuller et al (2002).…”

“…13 The greater acquirer return in private than public targets seems to reflect a liquidity discount for the assets of private targets. On the other hand, acquisitions of large listed firms could signal managerial "empire-building" incentives leading to negative reactions by investors (Draper and Paudyal, (2006)). However, when we examine the results by valuation periods we find that they are driven by the particular valuation conditions existed in the market since lowvaluation public acquisitions lose a significant CAR of -2.43%, while acquisitions undertaken during high-valuation months generate an insignificant return and at least do not lose.…”

Sources of Synergy Realization in Mergers and Acquisitions: Empirical Evidence from Non-Serial Acquirers in Europe

“…If anything, we find some weak evidence that the bidder CAR is larger when the target firm is stock-market quoted. This finding contrasts with previous research, documenting a larger bidder CAR for privately-held target firms (e.g., Draper and Paudyal, 2006). Overall, the results in Panel B of Table 4 allow us to clearly rule out an alternative explanation for our finding of a significant positive bidder CAR, namely that it is merely reflecting the large fraction of private target firms in our sample.…”

An Analysis of Short-Term Performance of UK Cross-Border Mergers and Acquisitions by Chinese Listed Companies

“…Therefore, the bidding firm is more likely to give more for the target that it can obtain in returns, which is finally harmful the wealth of the acquiring company's shareholders. On the contrary, Draper and Paudyal (2006) stated that managing the private companies with few people would be more likely to exclude agency problems and enhance the bargaining force. And this force is able to make the target private company to extract a higher price leaving the newly-combined companies disadvantaged.…”

“…There are very interesting reasons behind this phenomenon. Extensive arguments have been made to explain the results such as the liquidity argument (Fuller et al, 2002), managerial motive argument (Draper and Paudyal, 2006) and the possibility of a reduced level of hubris in the case of bidding for private targets (Conn et al, 2005). Results show that cash M&A deals perform relatively better than non-cash deals.…”