Disentangling acquisition premia: Evidence from the global market for corporate control

Francesco Baldi and Antonio Salvi

Finance Research Letters, 2022, vol. 48, issue C

Abstract: Our empirical analysis of 403 acquisitions completed globally between 2007 and 2015 uses a holistic approach to explain the key determinants of premia paid by acquirers, addressed by distinct literature streams. Our results show that overconfident, cash-generating acquirers overpay the targets. Higher premia are justified for larger-sized, high-growth targets, non-conglomerate acquisitions, and when the consideration is paid in stock. Acquirers embed expected operating synergies in premia offered to target shareholders. However, while cost-cutting synergies, more reliably achieved in post-merger integration, are easy to disclose and price, revenue enhancement synergies, requiring exceptional managerial capabilities, are of longer-term nature but more uncertain, thus leading acquirers to precautionarily withhold them in premium pricing. Financial synergies, arising from combining weakly or negatively correlated businesses, are not typically priced upfront.

Keywords: Acquisition premium; Synergies; Managerial hubris; Horizontal acquisitions; Market for corporate control (search for similar items in EconPapers)
JEL-codes: C21 C24 G15 G34 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:48:y:2022:i:c:s1544612322001684

DOI: 10.1016/j.frl.2022.102885

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