DCF or Hjallerup Market: What Drives Transaction Prices of Small- and Medium-sized Owner-led Companies?

Abstract

This thesis aims to answer the research question: “DCF or Hjallerup Market: What drives transaction prices of small- and medium-sized owner-led companies?”. To answer this question, a sample of 181 transactions with Danish small- and medium-sized owner-led companies are examined through a sequential explanatory research design consisting of a quantitative analysis followed by a qualitative analysis.

The thesis does not find sufficient evidence that transaction prices are driven by a DCF approach, representing an objective and theoretically driven price determination, but rather by a series of factors best described by “Hjallerup Market”, representing a more subjective and situational price determination.

Through the application of traditional valuation methods in quantitative analysis, the thesis finds a substantial deviation between the estimated and the actual transaction prices. The deviation is present across all valuation methods and therefore implies that the observed transaction prices cannot be explained by the application of traditional valuation methods. However, a significant variance throughout the results in the quantitative anal- ysis challenges the ability to base conclusions upon the results.

Based on the qualitative analysis, the thesis identifies a series of factors that influences the determination of the final transaction price. The identified factors include the desired urgency of the sale, preferences for spe- cific buyers, aversion towards specific transaction structures and variances in the degree of professionalism amongst company owners. The analysis finds signs of non-price maximising behaviour and a willingness to accept a lower transaction price in order to fulfil other wishes.

Overall, the thesis finds that the transaction prices of small- and medium-sized owner-led companies are driven by various factors best described by Hjallerup Market, making it challenging to explain transaction prices through traditional valuation methods as many other factors influence the final transaction price.