Venture capital-backed acquisitions: Performance, valuation and corporate governance

This thesis examines the role of VC backing in shaping the behaviour and outcomes of acquirers in M&As. The literature predominantly focuses on target firms, but the attention now shifts to the acquirer. This thesis aims to investigate whether VC-backed acquirers differ systematically from their non-VC-backed counterparts in terms of acquirer performance, takeover premia and corporate-governance characteristics.

First, the effects of VC backing on announcement returns are assessed. Rigorous analysis across multiple event windows explores potential channels. The initial findings indicate that VC-backed acquirers experience similar announcement returns compared with non-VC-backed firms, which is further affirmed by testing a matched sample after propensity score matching is performed. Once we interact VC backing with late VC funding the findings suggest that late-funded VC-backed bidders experience lower abnormal returns whereas VC-backed acquirers with multiple VC investments yield greater abnormal announcement returns.

Second, we proceed to investigate the premia paid by the acquiring firms pay to gain control of the target. The results suggest that VC-backed acquirers offer higher premiums and at the same time, targets of those transactions are experiencing greater cumulative abnormal returns. These results are especially pronounced when the premia paid, and the target announcement returns are estimated under a narrower event window around the announcement date. Especially in the case of serial acquirers, the results remain robust, and the effects are further enhanced.

Third, the evidence suggests that VC-backed acquirers attain more independent boards of directors at an earlier stage of their corporate life. Furthermore, although the female CEOs in the sample are significantly younger than male CEOs, that effect is not visible in VC-backed acquirers. Finally, the presence of a CEO with an elite education mitigates the adverse effects on the cumulative abnormal returns that VC-backed acquirers experience when undertaking an M&A transaction.