Online Appendix for 'Seller Debt in Acquisitions of Private Firms: A Security Design Approach'

47 Pages Posted: 21 Apr 2021 Last revised: 9 Sep 2021

See all articles by Mark Jansen

Mark Jansen

University of Utah - Department of Finance

Thomas H. Noe

University of Oxford - Said Business School; University of Oxford - Balliol College; Bank of Finland; European Corporate Governance Institute

Ludovic Phalippou

University of Oxford - Said Business School

Date Written: September 8, 2021

Abstract

This appendix provides derivations and additional results for “Seller Debt in Acquisitions
of Private Firms: A Security Design Approach.” Section A provides some background definitions and
simple mathematical identities used in the subsequent sections. Section B provides derivations for those result not established in the main text. Section C provides an example of cash flow distribution that satisfy Assumptions 1 and 2 but not the ratio condition, Assumption 4. Section D shows that almost all common “textbook” distributions satisfy the ratio condition, Assumption 4, when they satisfy the MLR ordering assumptions, Assumptions 1 and 2. Section E considers a number of alternative scenarios using a simple three-point cash flow distribution model and shows that seller debt can be optimal whenever acquirers are confident about their value-add plan and sellers have private information about the compatibility of their assets with the plan.

The paper is available at https://ssrn.com/abstract=3731086.

Keywords: Security design, private capital, private asset acquisition, asymmetric information, seller financing, screening equilibrium, tranching, disagreement

JEL Classification: G34, D86, D82, G32, G24

Suggested Citation

Jansen, Mark and Noe, Thomas H. and Phalippou, Ludovic, Online Appendix for 'Seller Debt in Acquisitions of Private Firms: A Security Design Approach' (September 8, 2021). Available at SSRN: https://ssrn.com/abstract=3830518 or http://dx.doi.org/10.2139/ssrn.3830518

Mark Jansen (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States
801-213-6910 (Phone)

HOME PAGE: http://eccles.utah.edu/team/mark-jansen/

Thomas H. Noe

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 3BJ
United Kingdom

University of Oxford - Balliol College ( email )

Broad St
Oxford, OX1 3BJ
United Kingdom

Bank of Finland ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

European Corporate Governance Institute ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Ludovic Phalippou

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

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