Determinants of m & a premiums: empirical evidence from Kuwaiti firms

Abstract

Purpose- This is an empirical study examining the premium paid over book value to target firms, and attempts to discover whether there are patterns in the firms that are involved in the acquisitions. We explore target financial characteristics that were considered attractive by the acquirer and thus motivated the acquiring firm to pay a premium to acquire these characteristics. This analysis will highlight some motivating reasons behind the decision to integrate. Methodology- The emperical study analyzes a sample of 68 M&A delas that took place between 2010 and 2017. The cross-sectional data gathered aimed at examining possible relationships between various financial variables and merger premiums. The objective was to determine the variables that were statistically significant in explaining variations in merger premiums. In this research, the price offered to acquire the stock is compared to the prevailing book price of equity. Findings- Takeover premium paid to target firm shareholders was found to be statistically negatively related to net income, and significantly positively related to percentage of ownership, debt-to-equity, sustainable growth rate, market value of the merger transaction, and gross cash flow to current liabilities. Conclusion- This study found that acquirers are seeking firms that are highly leveraged, with the ability to grow in the future, and a good liquidity position.