Lone Star Productions

Lone Star Productions (LSP) is a concert promotions business that was started in 1981 by Bill Oldman. Since 1986, this company has been the exclusive provider of concert promotion materials for 75% of the top grossing national tours. In 1997, Bill Oldman sold the company to a group of investors headed by Mike Sims. With a background in banking and investments, Sims took over a LSP’s president. Bill Oldman remained as the Chief Executive Officer of the company. Lone Star Productions’ business encompasses several segments, including concert promotions, audio and video production, production staffing, video editing, web site development, and equipment and suite rental. Currently, concert promotions account for 90% of the company’s revenue. Efforts to build business in the areas other than concert promotion have been mildly successful, but LSP considers the further development of these business areas to be critical to the long-term profitability and financial stability of the company, LSP is currently considering buying the largest video production company in the Dallas, Texas area.(Contact author for a copy of the complete report.)Small Busn. Mgmt

Earnout deals: method of initial payment and acquirers’ gains

We analyse the implications of initial payment methods in earnout deals on acquirers’ gains. The results, which are robust to self-selection bias and alternative model specifications, reveal that earnout deals outperform non-earnout deals. The acquirers gain the most from earnout deals when both initial and deferred payments are in stocks. The positive wealth effect of the choice of initial payment method in earnout deals is more prominent in cross-border deals than in domestic deals. Overall, the earnout deals generate higher gains when both the initial and deferred payments help spread the risk between the shareholders of acquiring and target firms

The Stock Market Evaluation of IPO-Firm Takeovers

We conduct an event study to assess the stock market evaluation of public takeover announcements. Unlike the majority of previous research, we specifically focus on acquisitions targeted at newly public IPO-firms and show that the stock market positively evaluates these M&As as R&D. However, bidders' abnormal announcement returns are significantly lower for takeovers directed at targets with critical intangible assets and innovative capabilities inalienably bound to their initial owners than for those that have internally accumulated respective resources and capabilities. We explain these findings with the acquirer's post-acquisition dependence on continued access to the IPO-firm founders' target-specific human capital. Our results contribute to literature in that they show that the stock market perceives these potential impediments to successful exploitation of acquired strategic resources and thus identify a potential cause for heretofore mostly inconsistent evidence on bidder abnormal returns in corporate takeovers found in previous research

The role of earnout financing on the valuation effects of global diversification

This article examines the impact of earnout financing on the value of acquiring firms engaged in cross-border acquisitions (CBAs), using a dataset of UK, US, Canadian and Australian firms from 1992 to 2012. The results show that firms initiating international business operations via earnout-financed CBAs enhance their value more than acquirers in (a) domestic acquisitions and (b) remaining CBAs by established multinational corporations (MNCs). Our findings demonstrate the superiority of earnout financing in CBAs announced by acquirers that have no prior international business experience. The results are robust to the firms’ endogenous choice to diversify globally and to the use of earnout financing. We contend that earnouts contribute to the reduction of valuation risk faced by firms acquiring a foreign target firm for the first time. Our empirical findings contribute to the existing debate on the merit of international expansion through CBAs and the role of earnout contingent payment