The Effect of Blood Ties on The Valuation of Privately-held Family Firms: An Investigation of the Relative Transaction Value of Privately-held Family Firms in Scandinavia

Philip Nellemann Skov & Tobias Viskinge Kølving Jensen

Student thesis: Master thesis

Abstract

Family firms currently face the largest transfer of wealth in history, notably “The Great Wealth Transfer”. However, the current literature exhibits a lack of research concerning the valuation of privately-held family firms. Based on this, the paper contributes in two ways. Firstly, the paper investigates the relative transaction value of privately-held family firms in Scandinavia compared to privately-held non-family firms. Secondly, the paper examines how specific family characteristics affect this relative transaction value.
Based on a sample of 56 family firm transactions and 219 comparable transactions, the paper applied a multiple transaction approach to estimate the relative transaction value of privately-held family firms compared to privately-held non-family firms. Subsequently, this paper utilised multiple regression analysis in order to investigate which specific family firm characteristics that affect this relative transaction value.
The findings of this paper contribute to the current literature on two levels. First, the paper finds that privately-held family firms are on average acquired at a discount relative to privately-held non-family firms. Secondly, the paper provides knowledge on specific family firm characteristics which might affect the relative transaction value of privately-held family firms in Scandinavia. It does so through four findings: (I) the paper finds that true family firms on average trade at a higher discount as opposed to founder-owned family firms. (II) an increase in the number of independent board members on average lowers the discount of family firms. (III) a family firm chairman on average lowers the discount of privately-held family firms. (IV) the paper finds that a strategic buyer on average increases the discount compared to a financial buyer when looking at our specific sample of transactions completed within the investigated time period.
In sum, the results of this research paper highlighted that privately-held family firms could benefit from professionalisation and optimisation of internal dependencies of the firm. Based on this, the paper recommends family firms to prepare themselves, for the coming years transfer of wealth, if they are considering a sale to a third party. The findings suggest that lowering internal dependencies could increase the likelihood of completing a sale and potentially even increase the transaction value.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final ThesisMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2020
Number of pages122
SupervisorsAleksandra Gregoric