Mergers And Acquisitions: Reducing The Private Firm Discount
Owners of private companies normally sell their shares at a 20-30 per cent discount during mergers and acquisitions. The 'private firm discount' is one reason the stock market reacts more favorably when companies announce a private acquisition than when the target is a publicly-listed firm. The discrepancy is even more noteworthy because private acquisitions tend to be smaller than the average public acquisition, so the target's weight in the combined equity is smaller, yet the effect is bigger. Market reaction is an effect of the choice of target, while acquisition strategy is a cause.