Korbinian Eichner

Challenging takeover premiums in deal situation can be difficult and the consequences are indeed material. If the proposed offer price is too high, value might be destroyed for the new owners. Is it too low, a proposed bid might be rejected. Therefore, understanding the underlying economics of takeover premiums is key. Therefore, this article looked into 589 takeover premiums of closed European transactions, which occurred between 2005 and 2016. It was found out that both acquirers’ strategic considerations and target firms’ financial characteristics can have a substantial impact on the level of takeover premiums. An acquirer’s strategic intention to gain access to new geographical markets and to accelerate the firm’s growth rate through the acquisition of a high growth firm increase his willingness for higher bids and therefore higher takeover premiums. Furthermore, the results of this empirical study suggest that low market valuations of a target firm, existing restructuring potentials like cost inefficiencies, and a high certainty to materialize synergies drive takeover premiums higher. Although every deal is unique in its own way, there are factors which correlate strongly with historically observable premiums paid. In order to optimize takeover premiums in deal situations, attention should be paid to the underlying economics of the deal and to which extend they could have an impact on the same.

When applying the capital asset pricing model (CAPM) for determining the cost of equity of banks, beta factors represent a key input parameter. The following study analyses which bank specific factors influence the observable level of beta factors for European banks. Based on a sample of 315 observations, it is found out that returns of equity, their variability, balance sheet risks, liquidity and regulatory capital levels, as well as size materially influence the levels of observable beta factors. The effects are found out to be highly statistically significant across various multivariate regressions. The results suggest that when creating peer groups of comparable companies, attention should be paid to these influencing factors to avoid including banks that substantially deviate in terms of these factors from those of the valuation subject.

This article studies empirically influencing factors of Price/Book-Multiples of banks with a particular focus on capital requirements according to Basel-III-framework. The analyses are based on a sample of 315 observations of European financial institutions. The presented results show that the level of the P/B-multiple can be explained by the banks’ specific operating risks, their expected (excess) returns of equity, future earnings growth, retention rates, as well as current regulatory capital ratios. When using the Price/Book-multiple to check the plausibility of objectified business values or subjective values for decision-making purposes, the selection of peer companies should be based on these variables, as these variables influence materially the level of this multiple.