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Department of Applied Finance and Actuarial Studies

Seminar by Tony Carlton

Research Seminars - business and economics
  • Topic: Investigating the discount on trade sale transactions
  • Speaker: Tony Carlton, Fellow - Corporate Finance and Project Analysis and Evaluation, Macquarie University Applied Finance Centre
  • Venue:
  • When: 24th August, 2012, (Fri)
  • Time:
Transactions involving the acquisition of unlisted targets is less explored territory compared to the more high profile public market acquisitions. However, transactions involving unlisted targets are significantly more common by number and, in dollar value, are material when compared to acquisitions of public listed companies. Recent empirical evidence has highlighted differences between transactions involving the acquisition of public and private targets. Acquirers of privately owned businesses earn excess returns, a result different to transactions involving the purchase of public targets This research will focus on one segment of the market for unlisted targets, namely the sale of subsidiaries by publicly listed companies. Officer (JFE, 2007) finds that listed companies sell a segment of their business at a 30% discount relative to transactions involving publicly listed targets. This discount is attributed to liquidity pressure on the selling company, prompting a fire sale. This result implies a significant transfer of value from seller to buyer and, if correct, suggests a significant friction in the efficient reallocation of assets within the economy.  I wish to explore the robustness of this conclusion by examining four issues. Firstly, other explanations have not been explored. The most obvious alternative explanation is that companies are undertaking strategic transaction to remove underperforming businesses. Other potential explanations also include the impact of agency costs, and mispricing arguments. Secondly, even if liquidity pressures are the cause, the transmission mechanism is not well understood. Thirdly, there are measurement issues raised in much of this research, driven by the use of valuation multiples. We consider the impact of these issues on reported results. This has implications for the use of multiples in both academic and applied settings. Finally, the potential for self selection raises endogenity issues which may affect statistical conclusions. We address these issues using a sample of private and public market acquisitions from the United States.


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