Synergies In Acquisitions Research Articles

Do Acquisitions of Private Targets Create Higher Value?

Acquirers, on average, earn higher announcement-period returns when their targets are privately held than when their targets are publicly traded. We show that private targets have significantly more intangible assets than do public targets. We then develop a valuation model that is based on the fair values of the targets’ tangible and intangible assets and demonstrate that relative to public targets, private targets, while commanding higher premiums over their stand-alone values, also generate higher synergies in the acquisitions. However, the higher synergies in private target acquisitions are not the result of the target status but are driven by the larger amount of intangible assets acquired in those deals. We also find that the variance of synergies in private targets is much larger than that in acquisitions of public targets. Finally, our results are robust for known effects such as mode of payment and expected growth.

Are Private Targets Better Buys?

Using a novel dataset that includes estimates of the fair value of the targets’ purchased tangible and intangible assets, we demonstrate that private targets have significantly more intangible assets than do public targets. We then develop a valuation model that is based on the fair values of the targets’ tangible and intangible assets and show that relative to public targets, private targets generate higher synergies in the acquisitions. However, the higher synergies in private target acquisitions are not the result of the target status but are driven by the larger amount of intangible assets acquired in those deals. We also find that the variance of synergies in private targets is much larger than that in acquisitions of public targets. Finally, our results are robust for known effects such as mode of payment and expected growth.

Knowledge transfer in acquisitions: Fear of exploitation and contamination

► This study focuses on knowledge transfer in acquisitions. ► We examine to what extent motivational factors influence knowledge transfer. ► Fear of exploitation and contamination impede knowledge transfer in acquisitions. Knowledge transfer plays an important role in the creation of synergies in acquisitions. Acquisitions provide opportunities for learning and are often justified on the basis of the new knowledge made available or created by them. Nevertheless, we do not know enough about the factors that influence knowledge transfer in the context of acquisitions. This paper focuses on the motivation on part of individuals in the acquiring and target companies to share their knowledge and make use of the knowledge of their partner. More specifically, it is hypothesised that the fear of being exploited or contaminated by the other party will have a profound negative effect on the transfer of knowledge in acquisitions. These hypotheses are tested on a sample of acquisitions by Finnish companies in 2001–2004 and they are largely supported by the empirical analyses.

Do windfall non‐debt tax shields from acquisitions affect corporate debt issues?

PurposeThe purpose of this paper is to identify possible tax synergies from acquisitions when the acquiring firm gains a non‐debt tax shield (NDTS) not directly associated with its own past performance, or a windfall NDTS. One possible benefit of a windfall NDTS is reduced reliance on interest tax shields to lower the firm's marginal tax rate (MTR).Design/methodology/approachThis paper tests the likelihood of issuing debt following acquisitions of windfall non‐debt tax attributes with logistic regressions. Both acquirers and targets are publicly held US firms. Acquisitions are completed from 1987 to 2003, and debt issues are observed following the deal. Target firm tax attributes are defined as the total tax spread, tax loss carryforward (TLCF), and the MTR.FindingsTarget firm tax spread and TLCFs are inconsequential to the acquirer's likelihood of issuing future debt, suggesting that tax synergies are relatively unimportant motives for acquisitions. As predicted, the target firm MTR is not significant to acquirer debt issues.Originality/valueThis paper makes several contributions. First, the notion of tax synergies from acquisitions is unresolved. This paper continues the search for tax synergies in acquisitions by examining the importance of acquired NDTS in the post‐acquisition period. Second, this paper examines the influence of NDTS on debt issuance in a post‐event framework. Third, this paper provides additional evidence that corporate managers have leverage targets.

Target Firm-Specific Information and Expected Synergies in Acquisitions

This study investigates whether firm-specific information about targets improves acquisition efficiency. We define acquisition efficiency as the total surplus generated by an acquisition (Vickrey 1961; Milgrom 1989) and measure it as the difference in the value of the merged firm and the sum of the two firms operating separately. We find a positive association between target firm-specific information and acquisition efficiency that is driven mainly by diversifying acquisitions. Additional evidence suggests that both the likelihood of the withdrawal of an announced acquisition and the likelihood of a future divestiture of a target decrease with target firm-specific information. Taken together, our findings suggest that the availability of this information improves merger and acquisitions efficiency.

Interview with Dr. Dieter Thomaschewski, President European Strategy Program, BASF Aktiengesellschaft

Executive Overview BASF is the world's leading chemical company, offering high-quality products and intelligent system solutions for many industries under the motto “We don't make the products you buy, we make the products you buy better.” The company employs 87,000 people in 170 countries on all five continents and generated a turnover of 33.4 billion Euros in 2003. A graduate in business administration, Dr. Dieter Thomaschewski joined BASF AG more than 30 years ago. After several jobs in marketing and sales he became President of BASF Venezolana S.A. in 1987, subsequently becoming President of BASF Information Systems in the U.S. Since 1992 he has been in charge of BASF's fertilizer division and also President of BASF's Region Europe. Currently he is responsible for the European strategy program within BASF group. Dr Thomaschewski has published books on corporate growth strategies, business success factors, and synergies in acquisitions.