Prior Relationships and M&A Exit Valuations

Abstract

An empirical investigation was conducted into the effects that prior relationships between buyer and target firm have on the purchase price paid. Forty acquisitions of Canadian and US high-technology firms are examined using a set-theoretic approach (Ragin [2000]) to determine the effects of industry and inter-firm alliances on the price-to-book ratio. We find that specific combinations of prior relationship type are positively associated with higher prices. These results suggest that relationships at different levels of analysis can act to mitigate information asymmetries in a value-creating manner and may provide practitioner guidance on strategies to increase value in M&A exits.

TOPICS: Private equity, security analysis and valuation, statistical methods, developed