The Impact of Acquisition Sequence on Acquirer Stock Market Performance

Abstract

This paper builds on real option theory to examine how distinct sequence patterns of diversifying acquisitions affect the acquirer stock market performance. I theorize that platform acquisition, which is a “growth option” for an acquirer, is negatively related to the acquirer stock market performance. On the other hand, I argue that roll-up acquisition, which is an “option to stage and sequence investment,” is positively related to the acquirer stock market performance. I also suggest that the transaction value of platform acquisition (i.e., option premium), previous roll-up acquisition experience (i.e., the frequency of sequential investments), and elapsed time between acquisition deals (i.e., when to exercise option) moderates these main effects, respectively. Empirical results indicate that platform acquisition is negatively related to the acquirer stock market performance. On the other hand, roll-up acquisitions that are repeatedly undertaken in the same industry with the platform company lead to positive acquirer stock market performance. Moreover, the longer elapsed time between platform acquisition and first roll-up acquisition positively influences the acquirer stock market performance. These findings suggest that in terms of diversifying acquisition, both the sequence and the roll-up process of acquisition make differences in the acquisition performance of an acquiring firm.