Venture Capital Firm Returns from Acquisition Exits

Center for Entrepreneurial and Financial Studies Working Paper No. 2012-01

44 Pages Posted: 21 Jan 2012

See all articles by Ann‐Kristin Achleitner

Ann‐Kristin Achleitner

Technische Universität München - Center for Entrepreneurial and Financial Studies

Reiner Braun

Technische Universität München (TUM) - TUM School of Management; Center for Entrepreneurial and Financial Studies

Eva Lutz

Heinrich-Heine-Universität Düsseldorf, Endowed Chair in Entrepreneurship/Entrepreneurial Finance

Uwe Reiner

Technische Universität München (TUM) - Center for Entrepreneurial and Financial Studies (CEFS)

Date Written: January 10, 2012

Abstract

In this paper we investigate the returns to venture capital firms from acquisition exits. Starting from M&A literature, we develop three detailed categorizations of acquisitions based on the acquirer’s motive and related agency issues. We use a proprietary data set of 2,356 venture capital-backed transactions from North America and Europe exited between 1982 and 2008 to assess our hypotheses. First, we show that returns from financial buyers are not statistically different from strategic acquirers. In addition, we show that synergy gains and low informational asymmetries in horizontal integrations result in similar venture capital firm returns such as the strategic premium paid by acquirers for diversifications. Both aforementioned acquisition clusters outperform vertical integrations. Further, due to the more severe agency conflict between management and shareholders, public acquirers pay higher prices. Finally, comparing acquisition cluster performance to initial public offerings reveals that based on cash multiples initial public offerings consistently outperform. However, if time is considered (by computing internal rate of returns) horizontal integration acquisitions and those purchased by public acquirers yield comparable venture capital firm returns.

Keywords: Acquisition, exit strategy, initial public offering, venture capital, investment performance, IRR, Cash Multiple

JEL Classification: G24, G31, M13

Suggested Citation

Achleitner, Ann-Kristin and Braun, Reiner and Lutz, Eva and Reiner, Uwe, Venture Capital Firm Returns from Acquisition Exits (January 10, 2012). Center for Entrepreneurial and Financial Studies Working Paper No. 2012-01, Available at SSRN: https://ssrn.com/abstract=1988823 or http://dx.doi.org/10.2139/ssrn.1988823

Ann-Kristin Achleitner

Technische Universität München - Center for Entrepreneurial and Financial Studies ( email )

Arcisstr. 21
Munich, D-80290
Germany
+49 89 289 25181 (Phone)

Reiner Braun

Technische Universität München (TUM) - TUM School of Management ( email )

Arcisstr. 21
Munich, Deutschland 80333
Germany
+498928925181 (Phone)
+498928925188 (Fax)

HOME PAGE: http://www.ef.wi.tum.de/

Center for Entrepreneurial and Financial Studies ( email )

Arcisstrasse 21
Munich, DE 80333
Germany

Eva Lutz

Heinrich-Heine-Universität Düsseldorf, Endowed Chair in Entrepreneurship/Entrepreneurial Finance ( email )

Universitätsstr. 1
Duesseldorf, 40225
Germany

Uwe Reiner (Contact Author)

Technische Universität München (TUM) - Center for Entrepreneurial and Financial Studies (CEFS) ( email )

Arcisstr. 21
Munich, 80333
Germany
+49 (0)89 289 251-87 (Phone)

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