Donninelli Paolini, Simone (2017) Acquisition premium: representation and relation with leverage. [Magistrali biennali]
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One of the most critical issue in M&A operations is the acquisition premium. This quantity is usually expressed as a percentage value. This thesis explains how the acquisition premium is usually represented by business analysts and academic literature. We highlight advantages and limits of this common premium measure. The purpose of our analysis is to prove the intuition of academics that the pre-deal leverage of the target company may overstate the dimension of percentage acquisition premium. We also analysed possible adjustment methods to correct this effect for the purpose of business valuation. This document is organized in four main chapters. The first chapter introduces the main concepts on the issue and the theoretical framework of reference. It illustrates how the value created inM&A operations is represented, how values are computed and the link between value and acquisition premium. The second chapter contains a theoretical analysis on the representation of acquisition premium and its relationship with leverage through an intense academic literature review. It illustrates different studies on premiums and how these studies reported them. Moreover, we provide the reader with theoretical examples to understand the effect of pre-deal leverage and we report the results of an important academic research on this issue. The third chapter represents the core of this thesis and contains an empirical analysis to verify our hypothesis. We used statistical and econometric tools to understand the relationship of pre-deal leverage and acquisition premium in the EU M&A market. Further, we investigate possible alternative solutions to express premiums. The fourth and last chapter provide the reader with an adjustment method suitable for the EU M&A market. Additionally, we illustrate the differences between the alternative ways of expressing premiums and this helpful method.
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