In a recent Journal of Financial and Quantitative Analysis article – titled “Do Unlisted Targets Sell at Discounts?” – Brattle Principal Torben Voetmann and his coauthors reexamined existing research and presented new research examining if acquisition pricing is affected by a company’s public or private status. In contrast to a common view held by practitioners, courts, and regulators, the authors did not find evidence that private companies or subsidiaries sell at a discount.

Transactions involving unlisted targets represent a significant share of the M&A market, yet valuing unlisted targets can be difficult since there are no market prices for these firms. For example, 83% of all acquisitions between 1984 and 2014 involved unlisted targets, accounting for 41% of the aggregate deal value. Given the scarcity of scholarly work supporting private company discounts – but a strong reliance on this research in the M&A community – the authors conducted their own analyses on a sample of 14,512 M&A transactions.

The authors extended the existing research in three ways. First, they replicated the existing research’s results and reviewed its methodology for potential biases. Second, they calculated discounts under a number of different approaches. Third, they adjusted for deal, market, and target characteristics in a multivariate setting.

Under a number of different approaches and after controlling for known determinants of acquisition pricing, the authors found no discount for unlisted private or subsidiary targets.

The article is coauthored by Jeffrey F. Jaffe of the Wharton School at the University of Pennsylvania, Jan Jindra of the U.S. Securities and Exchange Commission, and David J. Pedersen of the Rutgers School of Business–Camden. The full article can be found below.

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