University of Twente Student Theses

Business transactions in the Dutch small and medium-sized enterprises (SME’s) market sector : A research study on the level of discrepancy between business value and transaction value

Gaalen, Maarten van (2011) Business transactions in the Dutch small and medium-sized enterprises (SME’s) market sector : A research study on the level of discrepancy between business value and transaction value.

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Abstract:	The objective of this research study is to explorer and identify general factors that could be of effect on the level of discrepancy between business value and transaction value. In this research study, business value is considered to be the value of a business determined by an (expert) appraiser. The transaction value is considered to be the is the price agreed upon between the buyer(s) and the seller(s) in the transaction. In the practise field of corporate finance there is a discrepancy observable between business value and transaction value regarding business transactions in the SME market sector. Other than transaction specific factors, like the effect of negotiations between the buyer(s) and seller(s), it is unknown whether there are general factors that effect the level of discrepancy between business value and transaction value. So far little research has been done on this research topic. By means of a literature study six general factors have been identified that could be of effect on the level of discrepancy between business value and transaction value: the valuation method used to determine the business value, the commissioner of the business valuation, the type of buyer, the market trend during the transaction, the industry sector and the business size. In order to study the effect of these factors on the level of discrepancy, data has been obtained from 80 business transactions, in the period from December 2003 till May 2011, within the Dutch small and medium-sized enterprises market sector. Subsequently, multiple analyses have been performed in order to test the effect of these factors on the level of discrepancy between business value and transaction value. The results of this study showed that, within the total data sample, there is a discrepancy of approximately 20% between the appraised business value and the transaction value. The greatest difference can be found by the type buyer (i.e. insiders vs. outsiders). When the buyer(s) are in some way related to the business, e.g. current shareholders, management or family, the level of discrepancy between business value and transaction value is relatively small. The differences in discrepancy between insiders vs. outsiders are even more pronounced in the comparison of family-related buyers compared to non-family related buyers. Secondly, it is demonstrated that there are difference in the level of discrepancy between industry sectors. Differences in capital intensity, synergy possibilities, niche markets and number of potential competitor buyers within the industry sectors are underlying factors that may cause these differences. Thirdly, an effect on the level of discrepancy has been found by the used valuation method to determine the business value. The more objective valuation methods showed a smaller level of discrepancy compared to the more subjective valuation methods. No effects, on the level of discrepancy were found by the commissioner of valuation. However, the results do show that there is an effect of the commissioner of valuation on the probability for the business value to be higher or lower than the transaction value. When the valuation is commissioned by the selling party, there is a greater probability for the appraised business value to be higher than the transaction value. Finally, no results have been found indicating that the size of the business and the market trend during the transaction are of effect on the level discrepancy between business value and transaction value.
Item Type:	Essay (Master)
Faculty:	BMS: Behavioural, Management and Social Sciences
Subject:	85 business administration, organizational science
Programme:	Business Administration MSc (60644)
Link to this item:	https://purl.utwente.nl/essays/62796
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