Time is Money! Exploring the Determinants of the Time to Complete an Acquisition.

Abstract

Following the announcement of an acquisition, target and acquiring firms enter into a closing period of integration planning, additional due diligence, and renegotiations. This study builds off of strategy literature on completing M&A deals by investigating the determinants of the time to complete an acquisition. Our premise is that acquiring firms face conflicting time incentives during the completion process. Synergistic motivations and competitive pressures suggest that firms need to execute an acquisition quickly, or be subject to potential profit losses and losing the target firm in the competitive bidding process. On the other hand, there are significant resource requirements to moving quickly in the closing process as explained using the theory of time compression diseconomies. We expect that increasing complexity of the acquisition and dividing acquirer resources between multiple concurrent acquisitions will increase the time to complete an acquisition. Additionally, we expect the presence of an anti-competitive lockup clause will diminish the preemption incentive to quickly execute the acquisition. We find empirical support using data from the biotechnology and pharmaceutical industries.