Two-Stage Acquisitions and Deal Premiums

Abstract

40% of toehold acquisitions in the global M&A market are two-stage deals in which the acquirer holds a long-term toehold before obtaining majority control. A key advantage of two-stage deals is acquirers’ access to inside information. Using the UTSA enactment as an exogenous shock that decreases information availability, I find that UTSA increased two-stage acquirer CARs and the use of two-stage deals, but not short-term toeholds. It however also increased two-stage deals’ signaling value, increasing long-term target run-ups. These results indicate that two-stage acquirers’ information advantage affects M&A outcomes by enabling better decision-making and by signaling information to the market.