Economic uncertainty and the acquisition of private companies in Europe

Journal title FINANCIAL REPORTING
Author/s Luca Viarengo
Publishing Year 2025 Issue 2025/2
Language English Pages 32 P. 249-280 File size 310 KB
DOI 10.3280/fr202519871
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Purpose: Economic uncertainty affects mergers and acquisitions (M&As); however, there is limited evidence regarding its effect on the propensity to acquire privately held versus publicly traded companies, as well as how institutional factors influence such decisions. I hypothesize that economic uncertainty and financial market devel-opment influence the preferences for the type of acquisition targets. Design/methodology/approach: Using a sample of European M&A transactions and employing both measures of economic uncertainty and the uncertainty spike re-sulting from the pandemic, as well as the degree of financial market development, I test whether these factors are associated with the frequency of acquisitions involving privately held companies, further distinguishing between stand-alone private firms and subsidiaries. Findings: My analysis indicates that, under market uncertainty, acquisitions of pub-licly traded company diminish, while transactions involving privately held compa-nies increase. Furthermore, I demonstrate that the COVID-related spike in uncer-tainty generates an additional effect beyond general economic uncertainty. I also find that the positive association between uncertainty and acquisitions of privately held companies particularly applies to stand-alone private firms rather than subsidiaries. My findings also reveal that acquisitions of private companies are more likely in financially developed markets. Originality/value: This study contributes to the literature on the effects of economic uncertainty on M&As by highlighting the importance of uncertainty in shaping the relative frequency of acquisitions involving private versus public companies, while also emphasizing the significance of institutional factors in influencing such prefer ences. Moreover, my research enhances the understanding of privately held firms, whose specificities have largely been neglected in the academic debate.

Keywords: M&A, private companies, economic uncertainty

Jel codes: G34

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Luca Viarengo, Economic uncertainty and the acquisition of private companies in Europe in "FINANCIAL REPORTING" 2/2025, pp 249-280, DOI: 10.3280/fr202519871