Peer selection and valuation in mergers and acquisitions

Gregory W. Eaton, Feng Guo, Tingting Liu and Micah S. Officer

Journal of Financial Economics, 2022, vol. 146, issue 1, 230-255

Abstract: Using unique data, this paper examines investment banks’ choice of peers in comparable companies analysis in mergers and acquisitions. We find strong evidence that product market space is amongst the most important factors in peer selection, but Standard Industrial Classification (SIC) codes, particularly three and four digit codes, do a poor job of categorizing related firms in this setting. Banks strategically select large, high growth peers with high valuation multiples, factors that are also positively related to premiums. Our evidence is consistent with target-firm advisors selecting peers with high valuation multiples to negotiate higher takeover prices.

Keywords: Mergers and acquisitions; Valuations; Investment banks; Comparable companies analysis; Takeover premiums (search for similar items in EconPapers)
JEL-codes: G24 G34 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:146:y:2022:i:1:p:230-255

DOI: 10.1016/j.jfineco.2021.09.006

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