Chair of Financial Management
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- Private equity (14)
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In November 2015 German parliament passed a law regulating delisting offers requiring companies to offer shareholders a compensation at least equal to the six-month volume-weighted average price (VWAP) of the stock. This paper analyzes a sample of delisting offers made under the new regulations. We identify two primary motives for delisting. First, delistings linked to preceding takeover offers aim to pressure remaining shareholders into tendering their shares. Second, majority shareholders, leveraging private information, opt to delist and present an offer to minority shareholders when the stock is undervalued. Since institutional investors are often restricted to holding shares listed on regulated markets, they are effectively forced to accept such offers. Our findings suggest that majority shareholders may use delisting offers to take advantage of significant undervaluation caused by external shocks.
Markets for corporate control can foster innovation and growth due to the reallocation of resources and are thus vital for the efficiency of global economies. But, to efficiently reallocate resources, markets for corporate control have to be efficient themselves. The aim of this dissertation is to shed light on both, inefficiencies such as persistent principle-agent conflicts and the effect of the regulatory environment on corporate transactions in Germany. The first section serves as an introduction to reflect on research regarding corporate transactions, the principle- agent theory and market regulations as well as to summarize the three research papers and their current publication status. The first paper focusses on the effect of personal preferences of target CEOs on corporate transactions and is presented in the second section. Based on these insights, the second paper is dedicated to Fairness Opinions and their effect on corporate transactions and is presented in the third section. To further analyze the regulatory environment, the third paper focusses on legal thresholds that bidders have to surpass to gain full control over targets in the German market for corporate control and is presented in the fourth section.
Secondary buyouts (SBOs) appear paradoxical because the surge in SBO activity is met with scepticism from the public and investors regarding their performance. In this paper, we undertake a comprehensive analysis of SBO performance through two distinct lenses: First, we address the prevailing notion of SBOs as “lemons”. These are perceived as opportunities that, following a successful primary buyout (PBO), seemingly leave little room for further value creation. To investigate this “negative correlation hypothesis”, we employ a unique back-to-back sample of 276 cases involving the same firm in both a PBO and an SBO. Analysing the correlation between the internal rate of returns (IRRs) of back-to-back PBO/SBOs, our results do not support the “negative correlation hypothesis”. Second, we directly compare the deal performance of the two related back-to-back buyout rounds. For our back-to-back sample, we find that PBOs display significantly higher IRRs than SBOs. However, after performing a matched comparison adjusting for size and holding period differences, which are two well-known pitfalls of IRR rank orders, our findings suggest that there is no systematic outperformance of SBOs against their PBO comparables. Finally, we analyse differences in operating performance between PBOs and SBOs. Our results do not indicate a significant difference, either based on the back-to-back sample or when comparing PBOs and SBOs against matched public peers. In the light of our findings, we advocate for a reevaluation of the current perception of SBOs. Rather than being dismissed as “second-hand” opportunities, they should be recognised as “second-generation” opportunities deserving closer consideration.
It appears that the public perceives Fairness Opinions (FOs) merely as a secondary measure to manager liability insurance, which primarily serve to offer legal protection for the management rather than to provide economic transaction advice. To some degree this perception contrasts with the intended purpose of FOs, which is the assessment of financial adequacy of the offer to support the decision-making process of the client and the reduction of information asymmetries among stakeholders. This paper investigates the effect of FOs mandated by the target on the management recommendation in accordance with §27 WpÜG and the subsequent indirect effects on the success of corporate transactions in Germany. Based on a dataset of 323 transaction offers for publicly listed companies in Germany that were submitted in the years 2007 to 2022 we find strong evidence for the economic importance of FOs in the German market for corporate control. FOs increase the likelihood of unambiguous management recommendations. Utilizing path models, we find that positive (negative) FOs significantly increase (reduce) the success of corporate transactions. Our analyses suggest that the role of FOs for the efficiency of the market for corporate control is underestimated and should receive greater attention from both, regulators and market participants.
Signals during takeovers
(2023)
The success of a takeover offer hinges on the strategic deployment of signals, emanating from diverse sources including target and bidder management, as well as other stakeholders. The legal and factual frameworks governing the generation of informative signals play a pivotal role in determining which party holds the reins of the offer's success. Precise and widely disseminated signals empower shareholders to coordinate their actions effectively. In this study, I present a takeover offer game characterized by multiple equilibria with conditions of complete information. The adaption of the information structure following the approach of Carlsson & van Damme (1993) engenders a unique threshold equilibrium defined by a specific
threshold of a noisy signal concerning the target value. Notably, while opportunistically biased signals may impede efficiency, reliable signals can pave the way for efficiency-enhancing offers, thereby surmounting the free-rider dilemma outlined in Grossman & Hart (1980b). The probability of a signal falling short of this critical value provides a measure of the likelihood of a successful takeover. In the event of a successful acquisition, the financial gains are apportioned between the bidder and target shareholders.
Exploring takeover dynamics, this dissertation uncovers CEO influence in deal negotiations, revealing a quad-ratic relationship between target CEO age and offer success. It examines Fairness Opinions' role in corporate control, emphasizing their impact on management recommendations and takeover success, particularly with independent assessors. The study outlines how signaling in corporate transactions can be both beneficial and potentially manipulative, depending on the alignment of incentives and the availability of information.
The private equity industry has experienced a decade marked by substantial growth. However, as the investment landscape for capital providers has become more complex, the leadership team of private equity firms plays a more crucial role in navigating significant challenges. Focused on two themes, this dissertation explores the background of top management teams (TMTs) in private equity firms, its correlation with fund performance, and the backgrounds of deal lead partners and their risk assessment of leveraged buyout (LBO) investments. The first essay investigates TMT diversity, emphasizing its multi-dimensional connection with fund performance. The study differentiates between socio-demographic and occupational diversity, uncovering various effects on fund outcomes. The second essay constructs a diversity index based on a comprehensive methodology to maximize the correlation between TMT diversity and private equity fund performance. The third essay explores the risk profiles of private equity partners in LBO investment decisions, establishing a link between socio-demographic backgrounds and distinct risk assessment archetypes. This dissertation contributes to the literature in the intersection of private equity and TMT, providing insights for scholars and practitioners alike.