Gompers Xuan (2006) - The Role Of Venture Capitalists In The Acquisition Of Private Companies

This page is referenced under:

• VC Acquisitions Paper
• VC Acquisitions Lit Review

Reference

Gompers, P. and Xuan, Y. (2006), "The role of venture capitalists in the acquisition of private companies", Unpublished working paper, Harvard University (pdf)

@article{gompers2006role,
  title={The role of venture capitalists in the acquisition of private companies},
  author={Gompers, P. and Xuan, Y.},
  journal={Unpublished working paper. Harvard University},
  year={2006},
  abstract={In this paper, we examine the characteristics of acquisition of private firms by public companies and explore the impact that venture capital-backing has on the acquirer's characteristics, form of payment, announcement returns, as well as long-run stock price and operating performance. We find that compared to the acquirers of other private companies, those firms that acquire private venture capital-backed companies tend to be larger, have higher Tobin's Q, and are more likely to use equity in the transaction and buy companies in a related industry. The market tends to react more negative to announcement of the acquisition of a venture capital-backed company, but the long-run stock market and operating performance is superior than other private acquisitions. We find that the use of stock and related transaction predicts better long-run performance. Our results suggest that the acquirers of private venture capital-backed companies do not suffer any adverse selection problem and continue to have superior performance in the long-run. },
  filename={Gompers Xuan (2006) - The Role Of Venture Capitalists In The Acquisition Of Private Companies.pdf}
}

Abstract

In this paper, we examine the characteristics of acquisition of private firms by public companies and explore the impact that venture capital-backing has on the acquirer's characteristics, form of payment, announcement returns, as well as long-run stock price and operating performance. We find that compared to the acquirers of other private companies, those firms that acquire private venture capital-backed companies tend to be larger, have higher Tobin's Q, and are more likely to use equity in the transaction and buy companies in a related industry. The market tends to react more negative to announcement of the acquisition of a venture capital-backed company, but the long-run stock market and operating performance is superior than other private acquisitions. We find that the use of stock and related transaction predicts better long-run performance. Our results suggest that the acquirers of private venture capital-backed companies do not suffer any adverse selection problem and continue to have superior performance in the long-run.