The impact of ownership traits on acquisition behavior and performance
Spolverato, Gianni
Spolverato, Gianni
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Publication Type
Dissertation - Collection of articles
Editor
Supervisor
Meuleman, Miguel
Luypaert, Mathieu
De Maeseneire, Wouter
Luypaert, Mathieu
De Maeseneire, Wouter
Publication Year
2023
Journal
Book
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Publication Number of pages
148
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Abstract
Context This doctoral thesis delves into examining ownership traits and their impact on corporate acquisition behavior, with a primary emphasis on family-owned and private equity-owned firms. The research investigates the decision-making process of these block holders when investing in firms, particularly the dilemma they face in choosing between monitoring efforts to maximize shareholder value and pursuing private motives. The studies build on the determining factors that influence each type of owner's inclination towards value maximization, considering their unique identity, correlated private motives, and the relative significance of these motives compared to potential financial gains they might forego in pursuing private benefits. Aim To investigate how shareholder identity affects the acquisition behavior and performance of firms. Studies Chapter one explores how private family firms select their targets, focusing on diversification, internationalization, and innovation in their acquisition strategies. Using Behavioral Agency Theory, the study argues that these firms tend to prioritize social and emotional wealth (SEW) over purely financial gains. The paper hypothesizes that this tendency leads family firms to approach target selection cautiously, for instance, leading towards an aversion to acquiring highly innovative or cross-border targets. In chapter two, the focus shifts to the influence of private equity (PE) investors on publicly listed firms, particularly in the context of Mergers & Acquisitions (M&A). The chapter suggests that the motivation to create value through M&A decisions depends on whether the PE firm's investment occurs before or after the firm's initial public offering (IPO). Chapter three addresses the agency cost associated with surplus capital in the PE industry and its implications for buy-and-build strategies. As the industry accumulates an increasing pool of unallocated capital, PE firms face mounting pressure to deploy it judiciously. The study contends that implementing buy-and-build strategies, which involve making add-on acquisitions in portfolio companies, can effectively channel excessive levels of unutilized capital. Findings The first chapter underscores that family-owned firms prioritize SEW over financial gains in target selection for acquisitions, resulting in a conservative approach. This preference is particularly pronounced when led by family CEOs and founders. In the second chapter, the study reveals that post-IPO PE investors enhance M&A performance, especially with greater board representation. In contrast, pre-IPO investors are associated with lower returns, particularly when they exert stronger board influence and the firm's stock liquidity is lower. Finally, the third chapter addresses the pressure faced by PE firms to efficiently deploy surplus capital, introducing the buy-and-build strategy as a response. It finds that this pressure can lead to more investments in add-on acquisitions and a larger propensity for those deals to be unrelated to the platform's core industry. Moreover, buyout returns tend to be lower for buyout targets owned by pressured PE firms.