Essays on acquisitions of private companies [electronic resource]

Dimitrova, L (2013) Essays on acquisitions of private companies [electronic resource]. Doctoral thesis, University of London: London Business School.

Abstract

This thesis is an empirical investigation into various aspects of acquisitions of private companies, their determinants, performance and governance. In Chapter 2 of my thesis I study acquisitions of entrepreneurial ventures by corporate venture capital (CVC) investors as a way to access external innovation. I find that the likelihood of such an acquisition decreases with the uncertainty associated with the venture's innovation and increases with the number of CVCs co-invested in the venture. Moreover, CVCs with lower level of internal innovation are more likely to acquire portfolio ventures. However, the acquisition signals poor prospects for future innovation, which explains the negative market reaction to the announcements of such deals. In Chapter 3 of my thesis I examine the performance of acquisitions by Special Purpose Acquisition Companies (SPACs) and show that a significant portion of the cross-sectional variation in performance can be explained by the strong implicit incentives embedded in the SPAC contract. For instance, the short-term performance of SPAC acquirers is worse for acquisitions that are announced closer to the 2-year deadline (SPACs are given two years to complete a deal), for acquisitions where a portion of the IPO underwriting fees are being deferred and paid conditionally on a successful merger completion, and for acquisitions that have a market value very close to the required 80% threshold. In the last chapter of my dissertation I analyze the effect of target insiders' ownership on the performance of acquisitions involving private targets. My findings suggest that there is a concave relationship between the market reaction upon the announcement of an acquisition of a private target and target insiders' ownership. This result is primarily driven by the monitoring that target insiders provide, when they are elected as directors on the board or when they become blockholders in the merged firm.