To buy or not to buy - public or private. A study regarding the announcement effect and value creation in different types of M&A transactions
Sammanfattning: Purpose: The purpose of this study is to examine the abnormal returns for the acquiring firms surrounding M&A announcements. The emphasis of the study lies on examining the difference in abnormal returns between acquiring public and private firms. Secondly, the study aims to get theoretical insights by examining the relationship between the magnitude of abnormal returns and different deal characteristics. Theoretical framework: The concept of M&As is briefly introduced and is then followed by the managerial motives behind M&As and their impact on the announcement effect. Further, the chapter continues with a discussion about information asymmetry and the differences between private and public firms. Moreover, previous research within the field is presented, both regarding the announcement effect and value-creating characteristics. Methodology: An event study is used to determine the announcement effect over the event window. Statistical tests are performed to ensure statistical significance of the results. Further, a multiple linear regression model examines the effect of the study´s main variable target legal status and the method of payment, form of the transaction, relative size, deal size, domestic versus cross-border and focused versus diversified. Empirical foundation: The data sample consists of 17 liquid and highly developed markets in Western Europe (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom) announcing the acquisition of public or private targets from 2009-01-01 to 2015-02-01. Conclusion: First of all, the study shows that the announcement of M&As generally results in short-term abnormal returns for the acquiring firm in Western Europe. Secondly, the market seems to prefer acquisitions of private targets in comparison to public targets, which is supported by the theory of a private firm discount. Thirdly, the markets to a greater extent prefer (1) stock deals in favor of assets deals, (2) that the relative size between the firms is as large as possible, and (3) that the acquisitions are paid in cash instead of stock. The third conclusion is however not possible to ensure when only examining private targets.
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