Cash Deals Research Articles

Future Trend of Virtual Machines: A Case Analysis of Broadcom's Acquisition of VMware

On May 26, Broadcom, the U.S. communications chip giant, announced that it will acquire cloud services provider VMware for $61 billion in a stock plus cash deal. Broadcom would assume $8 billion of VMware's debt under the terms of the agreement, while its Broadcom Software Group will continue to operate under the name VMware. In tough economic times, it is customary for large technology companies to double their bets: in the 1990s, the old AA transformed itself from a hardware company into a software and services company during the recession, and in the midst of the global economic downturn, Broadcom has made no secret of its intent to expand and grow its software business by accelerating its investments and acquisitions. If Broadcom and VMware can combine their strengths, not only will customers benefit from the integration of product portfolios, but the synergies between these different products could open up new business models.

Pfizer to buy Biohaven for $11.6 billion

Seeking Nurtec, a pill approved to treat and prevent migraine in adults, Pfizer has agreed to acquire its maker, Biohaven Pharmaceuticals, in a cash deal valued at $11.6 billion. Pfizer has plenty of cash on hand, thanks to sales of its COVID-19 antiviral Paxlovid and its COVID-19 vaccine Comirnaty. It is now looking to Nurtec (rimegepant), a small-molecule drug considered a potential blockbuster for an underserved therapeutic category, as part of the bulwark it is building against future patent expiries. “The deal fulfills Pfizer’s promise to investors to expand its late-stage and commercial portfolio with near-term growth drivers and puts Pfizer at the center of a growing therapeutic area dominated by other big pharma rivals, chiefly AbbVie Inc., Eli Lilly and Company and Amgen,” Jessica Merrill, an analyst at Informa Pharma Intelligence, wrote in a report on the deal. The multibillion-dollar value of the deal compares with the $50 million

Wajax expands in industrial process pumps

Canadian distributor Wajax Corp has acquired the net operating assets of Thunder Bay, Ontario-based Process Flow Systems Ltd in a US$3.96 million cash deal with a three-year performance-based earnout of up to US$650 000.

Franklin Electric adds to Headwater portfolio

Franklin Electric Co Inc's Headwater Companies LLC has acquired Blake Group Holdings Inc, a Connecticut, USA-based groundwater distribution company, in a US$27.1 million cash deal.

Ingersoll Rand to pay €431.5mn for Seepex

Ingersoll Rand Inc has entered into an agreement to purchase the German positive displacement (PD) pump company Seepex GmbH in a €431.5 million cash deal.

Pentair closes Ken's Beverage acquisition

Pentair plc has completed its acquisition of Ken's Beverage Inc (KBI) in an US$80 million cash deal (see Filtration Industry Analyst, April 2021).

Savvy Target Insiders’ Trading Before Takeover Announcements

We contribute to the M&A literature by characterizing the information available to target insiders during the pre-public takeover negotiations. We analyze insider trading in target firms in the US between 2005 and 2018. First, we show that signing confidentiality agreements is an important information threshold. Second, insiders have a good grasp of deal success. They increase their net purchases only in deals with higher completion probability. Third, insiders guess the final offer price well, but their trading strategies additionally reflect their knowledge of deal characteristics. They prefer bidder-initiated, cash, privately negotiated, and strategic deals. Insiders combine several sources of information.

Franklin Electric adds US distributor to Headwater portfolio

Franklin Electric Co Inc has acquired Gicon Pumps & Equipment Inc, a Lubbock, Texas-based groundwater distribution company, in a US$27.9 million cash deal.

Impact of Cash Deals and Related Industry Merger on Synergies Gains: A Case of Indian M&A

A firm's financial attributes play an essential part in the merger decision. The present paper attempts to improve the existing literature on assessing M&A activity in Indian corporate. This research paper aims primarily to analyze the (a) Synergies realized when the mode of payment in the merger deal is cash, (b) impact on bidder liquidity when payment is made in cash (c) Synergies realized when both target and acquirer in the deal belong to related industry, i.e. the merger is horizontal and (d) assess the impact on bidder leverage when payment is made in equity. The paper has analyzed a panel of 120 major Indian M&A deals from 2005 to 2015, having three years of data pre and post-merger. Instrument Variable Probit Regression analysis has been employed in the study. The key results from the analysis show that in case of payment method in the deal being cash, M&A appears financially favorable for the bidder companies. The results of the empirical analysis of the study do support the generation of synergies in the case of horizontal mergers. The combined firm has also found to have lower liquidity for Indian Mergers & Acquisitions. Significant results have also been obtained for the leverage variables indicating fewer borrowings for the merged firm.
 JELL Classification Code: G34, C35, M41.

The Effects of the Aggregate Stock Market on Mergers and Acquisitions

We exploit changes in the aggregate stock market conditions as an exogenous shock to an individual M&A deal to explore the economic motivations behind these deals. Equity deals exposed to negative stock market returns after deal announcements are less likely to be completed and deliver lower abnormal returns for both acquirers and targets, especially when acquirers' market betas are high. In contrast, cash deals are not affected by the negative post-announcement market conditions. Further analyses indicate that synergies, rather than mispricing, are the leading motive behind deals affected by changes in stock market conditions.

The Idiosincrancies of the European M&A Market

This paper provides a comprehensive descriptive analysis of the European market of mergers and acquisitions (MA 2) method of payment; 3) geographical scope; 4) target’s attitude; 5) bidders’ competition; 6) industry relatedness; 7) public status of the firms involved; and 8) acquirers’ ownership of targets before and after the transaction. Additionally, we identify the similarities and differences of this market with those of the dominant market worldwide, namely the US. Both markets show similar trends in their activity and the occurrence of waves concentrated around economic shocks. However, the European market notably exhibits higher levels of friendly and cash deals.

Investors’ activism and the gains from takeover deals

We examine whether activists add value to the shareholders of targets and their acquirers. Several findings emerge. First, acquirers of targets that have activists outperform acquirers of other targets in both the short and long term. Second, the premium received by the shareholders of targets is not affected by activism. Third, superior gains achieved by the acquirers of targets with activists are driven by non-cash deals, while the average target benefits more from cash deals.

Strategic investment acquisitions performance in UK firms: the impact of managerial overconfidence

PurposeThis paper focuses on the influence of overconfident managers on strategic investment acquisitions performance, by investigating the influence of key contextual factors on acquirers’ returns of UK domestic and cross-border acquisitions during the period 2000-2009. In this study, particular attention has been paid to management attributes (frequent acquirers vs non-frequent acquirers); method of payment (cash vs non-cash deals); the geographic scope (domestic vs cross-border deals); the type of the target (public vs private); the industry scope; and the relative size.Design/methodology/approachAn event study is used to analyse domestic and cross-border acquisitions. The market model is used for estimating the acquirers’ abnormal returns of 1,133 domestic and cross-border acquisitions by UK firms between 1 January 2000 and 31 December 2009.FindingsThe findings reveal that acquirers with domestic targets have higher returns than cross-border targets. Infrequent acquirers generate higher returns from domestic and cross-border acquisitions than frequent acquirers. Further, acquirers that acquire domestic targets from different industrial sectors produce higher returns than acquirers with targets from the same sector. Acquirers with cash deals, private targets and high book-to-market ratio generate significant returns compared to acquirers with non-cash deals, low book-to-market ratio and public targets and that for domestic and cross-border deals. These results suggest that UK domestic and cross-border acquisitions are partially shaped by overconfident managers.Research limitations/implicationsThe study has a number of limitations, including the use of the market model, the data-collection process and the limited number of contextual factors. Future research may examine a number of avenues related to the current study, including incorporating the acquiring firms’ financial characteristics.Practical implicationsThe study provides a better understanding of the influence of contextual factors on the success and failure of strategic investment projects such as acquisitions. Results of post-acquisitions performance in UK firms show how estimation of value can be distracted at the pre-acquisition stage because of overconfident managers.Originality/valueResults of post-acquisitions performance in UK firms show how estimation of value can be distracted at the pre-acquisition stage because of overconfident managers.

Pentair seals acquisitions of Pelican Water Systems and Aquion

Pentair plc has closed its acquisition of Pelican Water Systems in a US$120 million cash deal and Aquion for US$160 million in cash, subject to customary post-closing adjustments (see Filtration Industry Analyst, January 2019).

Emerging Market Bidder Returns and the Choice of Payment Method in Mergers and Acquisitions: Evidence from India

Consistent with other evidence on short-run effects of mergers and acquisitions (M&A) announcements on acquiring firm’s shareholder wealth in emerging markets, our study reveals that M&A deals in India, irrespective of the payment method, are not value destroying. Cash deals and stock deals create shareholder wealth on deal announcements. We offer ‘pseudo-cash deal hypothesis’ to explain this phenomenon. We also observe that bigger the relative size of the deal, greater is the abnormal return on deal announcements. We observe that acquirers with high promoter holdings are highly reluctant to offer stock when they acquire a majority stake. However, bigger deals, deals for listed target firms, and deals in the information technology sector, command stock offers. JEL Classification: G34, G14

Short Selling, Informed Trading, and the Role of Social Media

This paper investigates the relationship between short selling and Twitter activity prior to merger and acquisition announcements. Data are for U.S.-listed banking firms from 2009 to 2013. In the week prior to the M&A announcement, we find abnormal daily short selling, particularly for cash deals. Twitter activity, rarely present in the week prior to the M&A announcement, spikes at the time the deal is announced. Social media tips do not appear to provide a channel for information transfer to short sellers prior to M&A announcements nor do sellers use social media to apply market pressure for stocks they have shorted.

Dissecting bidder security returns on payment methods

Abstract The choice of payment methods in M&A deals can affect bidder stock and bond value through two channels simultaneously: signaling and wealth transfer. We propose a method to disentangle these two effects by combining observed bidder stock and bond abnormal returns around deal announcements. Our findings indicate that the negative average bidder stock return in stock deals is mostly caused by signaling, and the negative average bidder bond return in cash deals is mostly due to wealth transfer. We also hypothesize that signaling is related to bidder information uncertainty, while wealth transfer is related to deal significance and bidder default risk. Cross-sectional analysis supports our conjecture.

Porvair buys Keystone Filter from Ceco Environmental

Porvair Filtration Group has purchased the goodwill, business and trading assets of Keystone Filter, a division of Ceco Environmental Corp, in a cash deal.

The impact on shareholder value of top defense counsel in mergers and acquisitions litigation

Defense litigation counsel are retained by target firm management to defend them in mergers and acquisition (M&A) litigation. We use hand collected data from a ten-year period (2003−2012) to examine whether the choice of defense litigation counsel affects the outcome of M&A litigation and shareholder value. We construct league tables for defense litigation firms and identify the top 10 defense litigation firms. Comparing these firms with all other defense litigation firms, we find that top defense litigation counsel are involved in a significantly higher proportion of cash deals, non-same-industry deals (implying a lower possibility of antitrust-related concerns), and friendlier deals, all of which are associated with smaller initial takeover premium proposals. We find evidence that, controlling for endogeneity, top defense litigation counsel negotiate cheaper and faster settlements than other defense litigation counsel thereby protecting low premium deals from more serious challenges. We also show that top defense litigation counsel are more effective in multijurisdictional litigation cases, again obtaining cheaper and faster settlements in low premium deals, which we theorize shows that they are better able to handle the complexity and strategy that accompany these lawsuits.

Assessing abnormal returns: the case of Chinese M&A acquiring firms

This paper analyzes the economic benefits that accrue to Chinese acquiring firms. Our sample is based on 279 Chinese acquiring firms from 1990 until 2008 and leads to three main findings: i) Chinese acquirers have positive abnormal returns in contrast to western acquirers which tend to earn negative abnormal returns; ii) Chinese takeovers involving alternative modes of consideration have higher abnormal returns than cash deals, again in contrast to western acquirers where cash deals earn higher returns, and iii) The difference in the abnormal returns between alternative and cash deals for Chinese acquirers is driven by highly valued firms.