Family Firm Exits: The Impact of Family Ownership and Professional Experience on Acquistion Prices

Abstract

The study uses a dataset of 48 privately held family firm acquisitions from Northern Europe and a matched pairs approach applying transaction multiples to systematically compare family firms and comparable nonfamily firms with the objective to investigate whether family ownership and the presence of professional experience, among family-owned firms, affect the acquisition price. The study makes two essential findings. First, the study shows that family ownership implies that family firms are acquired at a lower price (i.e., acquired at a discount) relative to nonfamily firms. Second, testing different CEO characteristics and the presence of sell-side financial advisor among family firm targets, the study finds that family firms with a non-experienced family CEO are acquired at a significantly higher discount, relative to nonfamily firms, than family firms with a nonfamily CEO. Further, family firms with a hired sell-side financial advisor are acquired at a significantly lower discount, relative to nonfamily firms, than family firms that have not hired a financial advisor. Taken together, these results provide evidence that although family firms are acquired at a relative discount to nonfamily firms, the presence of professional experience have an impact on the acquisition price outcomes of privately held family firm targets.