The price of corporate liquidity: Acquisition discounts for unlisted targets

The price of corporate liquidity: Acquisition discounts for unlisted targets This paper documents average acquisition discounts for stand-alone private firms and subsidiaries of other firms (unlisted targets) of 15% to 30% relative to acquisition multiples for comparable publicly traded targets. My results are strongly consistent with the notion that sale prices for unlisted targets are affected by both the need for, and availability of, the liquidity provided by the buyer. Corporate parents are significantly liquidity-constrained prior to the sale of a subsidiary, particularly when the subsidiary is being sold for cash. Furthermore, acquisition discounts are significantly greater when debt capital is relatively more expensive to obtain, and when the parent firm has below-market stock returns in the 12 months prior to the sale. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Economics Elsevier

The price of corporate liquidity: Acquisition discounts for unlisted targets

Journal of Financial Economics, Volume 83 (3) – Mar 1, 2007

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Publisher
Elsevier
Copyright
Copyright © 2006 Elsevier B.V.
ISSN
0304-405x
D.O.I.
10.1016/j.jfineco.2006.01.004
Publisher site
See Article on Publisher Site

Abstract

This paper documents average acquisition discounts for stand-alone private firms and subsidiaries of other firms (unlisted targets) of 15% to 30% relative to acquisition multiples for comparable publicly traded targets. My results are strongly consistent with the notion that sale prices for unlisted targets are affected by both the need for, and availability of, the liquidity provided by the buyer. Corporate parents are significantly liquidity-constrained prior to the sale of a subsidiary, particularly when the subsidiary is being sold for cash. Furthermore, acquisition discounts are significantly greater when debt capital is relatively more expensive to obtain, and when the parent firm has below-market stock returns in the 12 months prior to the sale.

Journal

Journal of Financial EconomicsElsevier

Published: Mar 1, 2007

References

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