Type Of Acquirer Research Articles

Fintech mergers and acquisitions

Fintech firms have emerged as popular targets for mergers and acquisitions (M&A) in response to the remarkable growth of the fintech industry. However, different acquirers assess the benefits of these deals differently, and the actual benefits realized may diverge from the expected synergies. This study scrutinizes the value of fintech M&As for three types of acquirers: U.S. public banks, nonbank financial institutions, and tech companies. The short-term market reaction to fintech M&As is negative for acquiring banks and insignificant for nonbank financial institutions and tech companies, which is not explained by deal-level or acquirer-level characteristics. Moreover, using a matched sample, we find limited evidence suggesting that fintech M&As contribute to improvements in acquirers’ subsequent operating performance, innovation, or business diversification strategy. Overall, the evidence suggests that fintech acquirers, particularly acquiring banks, may potentially overestimate the benefits of such deals. Our study calls for improved guidelines to ensure more informed decision-making in fintech M&As.

Family Firm Value in the Acquisition Context: A Signaling Theory Perspective

Drawing on signaling theory, we explore the signaling effect of family firm status on firm value in the acquisition context as well as important contingencies influencing the signal’s effectiveness. Based on a sample of 486 observations of acquisitions in France, Germany, Italy, and Spain from 2011 to 2019, our empirical results suggest that acquirers purchase family firms at a higher firm value than non-family firms. This relationship is moderated by the target firm’s financial performance (i.e., high vs. low) and listing status (i.e., private vs. public) prior to an acquisition, as well as the type of acquirer (i.e., financial vs. non-financial) and the acquirer’s geographic location (i.e., cross-border vs. domestic). Our study’s findings suggest that family firm value is driven not only by the characteristics of the family firms that become acquired but also by the characteristics of the acquirers as they influence the effectiveness of the family firm signal.

Representations and warranties insurance in mergers and acquisitions

To mitigate information asymmetry in acquisitions, the seller makes contractual representations and warranties (referred to as “R&W” or “reps”) about the state of the target, such as attesting to the accuracy of the target’s financial statements. While seller indemnities allow buyers to impose costs due to breaches in the reps discovered after the deal’s close, these indemnities involve significant contracting costs. To mitigate these costs, the acquisition parties have increasingly turned to purchasing representations and warranties insurance. Using a proprietary and novel sample of R&W insurance policies issued worldwide for acquisitions of non-public targets, we find that the demand for R&W insurance, the premium charged for it, and the likelihood of a claim being filed are correlated with industry metrics for valuation uncertainty, the type of acquirer and seller, and the target’s legal regime. In particular, we find higher demand for R&W insurance and a higher R&W insurance premium charged when the target belongs to an industry with weaker internal controls. We also find that a higher premium is charged when the target is in an industry with relatively high levels of R&D to sales, indicating that the insurance company expects unrecognized intangible assets to have a greater risk of future claims. Our study adds to our understanding of how parties reduce target valuation uncertainty and the role of disclosures and R&W insurance policies in private mergers and acquisitions transactions.

Operating performance following corporate acquisitions: Does the organisational form of the target matter?

We compare the long-run operating performance of private target acquirers and public target acquirers using a sample of Australian acquisitions. While private target acquirers realise significantly higher abnormal returns during the announcement period of acquisitions than public target acquirers, there is no significant difference in their operating performance during the post-acquisition period. Relative size has differential effects on the performance of two types of acquirers. Significant performance improvements are possible when private target acquirers make relatively large acquisitions and when public target acquirers acquire relatively small acquisitions. Acquisitions of private targets are also associated with significant performance improvements if they are undertaken by experienced acquirers.

Takeover Premia and Leverage: Theory, Empirical Observations and Recommendations

AbstractThe greater a target company’s leverage, the less cash or shares an acquirer needs to control the target enterprise. Given the benefits of acquiring a target, the equity takeover premium is spread over relatively more assets in a more highly leveraged target, thus reducing the premium paid relative to the entire enterprise. This suggests that more levered targets may receive greater equity premia, expressed as a percent of the unaffected share price, other things equal. To test this, we examine takeover transactions that occurred during the 2003–2013 time period. We find that higher equity takeover premia are related to higher pre-deal leverage levels, consistent with theory. Our results are robust with respect to size, industry, profitability, year of transaction, synergy potential, and type of acquirer (strategic, horizontal or financial). Our empirical analyses support the Appraisal Foundation Working Group’s recommendation for best practices, namely, to adjust takeover premia for leverage.

Does the Post-Acquisition Performance of Bidding Firms Depend on the Organizational Form of Targets Acquired?

A number of theoretical arguments such as corporate monitoring hypothesis, liquidity hypothesis and managerial motive hypothesis propose that the acquisitions of private targets are more value creating than the acquisitions of public targets. Using two large samples of acquirers of public targets and acquirers of private targets, we examine the post-acquisition operating performance of Australian bidders. The excess returns earned by these two samples during the announcement period reveal that the market perceives the acquisitions of private targets as value creating decisions while having a neutral view on the acquisitions of public targets. These findings corroborate existing evidence in the area while providing support for the relevant theories. An analysis of acquisition year financial profiles reveals that the acquirers of public targets are much larger in size, highly profitable and cash rich than the acquirers of private targets. Compared with acquisition-year performance, acquirers of public targets were able to maintain their performance in the post-acquisition years while the acquirers of private targets were able to show a significant improvement. However, when the industry-adjusted abnormal performance was analyzed, it was found that the former group outperformed their industry peers as well as the latter group by a significant margin. A number of bid and firm characteristics were found to have differential influences on the performance of two types of acquirers. Our sensitivity analyses revealed that the influences of bid and firm characteristics are somewhat sensitive to the benchmark used to generate abnormal performance and the scaling factor used to calculate performance measures.

What Do Private Equity Firms Look for in an Investment? Target Governance Provisions and Going Private Transactions

I examine the role of governance characteristics in determining the probability of a firm undergoing a going private transaction. I find that firms with greater board control are more likely to go private while firms with strong anti-takeover provisions are more likely to be acquired by other public companies. The positive relationship between greater board control and the likelihood of going private is driven by private equity backed deals. On the other hand, the negative relationship between anti-takeover provisions and the probability of going private is driven by non private equity backed deals. In addition, I find that shareholder voting restrictions do not affect firms’ survival status while a higher number of state antitakeover laws reduces the likelihood of being acquired. Finally, abnormal returns to shareholders are much lower for going private transactions than for acquisitions by public firms. The results suggest that governance provisions affect shareholder wealth during change of control transactions by playing an important role in determining the type of acquirer.

Acquistion Targets and Motives in the Banking Industry

This paper uses a large sample of individual banking organizations, observed from 1996 to 2005, to investigate the characteristics that made them more likely to be acquired. We use a definition of acquisition that we consider preferable to that used in much of the previous literature, and we employ a competing-risk hazard model that reveals important differences that depend on the type of acquirer. Since interstate acquisitions became more numerous during this period, we also investigate differences in the determinants of acquisition between in-state and out-of-state acquirers. We also employ a subsample of publicly traded banking organizations to investigate the role of managerial ownership in explaining the likelihood of acquisition. The hypothesis that acquisitions serve to transfer resources from less efficient to more efficient uses receives substantial support from our results, as do a number of other relevant hypotheses.

Acquisition Targets and Motives in the Banking Industry

This paper uses a large sample of individual banking organizations, observed from 1996 to 2005, to investigate the characteristics that made them more likely to be acquired. We use a definition of acquisition that we consider preferable to that used in much of the previous literature, and we employ a competing‐risk hazard model that reveals important differences that depend on the type of acquirer. Since interstate acquisitions became more numerous during this period, we also investigate differences in the determinants of acquisition between in‐state and out‐of‐state acquirers. We also employ a subsample of publicly traded banking organizations to investigate the role of managerial ownership in explaining the likelihood of acquisition. The hypothesis that acquisitions serve to transfer resources from less efficient to more efficient uses receives substantial support from our results, as do a number of other relevant hypotheses.

The Geography of Block Acquisitions

ABSTRACTUsing a large sample of partial block acquisitions, we examine the importance of geographic proximity in corporate governance and target returns. We find that block acquirers have a strong preference for geographically proximate targets and acquirers that purchase shares in such targets are more likely to engage in post‐acquisition target governance activities than are remote block acquirers. Moreover, the targets of these acquirers realize higher announcement returns and better post‐acquisition operating performance than do targets of other types of acquirers, particularly when they face greater information asymmetries.

The Geography of Block Acquisitions

Using a large sample of partial block acquisitions in the U.S., we examine the importance of geographic proximity in corporate governance and target returns. We find that block acquirers have a strong preference for geographically proximate targets and acquirers that purchase block shares in such targets are more likely to engage in post-acquisition target governance activities than are remote block acquirers. Moreover, the targets of these acquirers realize higher abnormal announcement returns and better post-acquisition operating performance than do targets of other types of acquirers. The positive valuation effects for targets are stronger when targets are smaller, when targets are riskier, when targets have a higher level of R&D investments, when targets perform poorly, or when targets have higher insider ownership, suggesting that information asymmetries or monitoring costs associated with geographic proximity are an important source of gains in partial block acquisitions.

Are Friendly Acquisitions Too Bad for Shareholders and Managers? Long‐Term Value Creation and Top Management Turnover in Hostile and Friendly Acquirers

The well‐documented failure of the majority of acquisitions to create value is often identified in popular discussion with hostile acquisitions, whereas friendly acquirers seem to get a friendly press. The relative performance of friendly and hostile acquirers therefore warrants a rigorous empirical investigation. Clear evidence of superior value creation in hostile over friendly acquisitions allows us to judge the efficacy of the market for corporate control. In this article we examine the long‐term shareholder wealth performance of four types of acquirers – friendly bidder, hostile bidder, white knight and hostile bidder facing a white knight or another hostile bidder. For a sample of 519 acquisitions of UK target firms during 1983–1995, we estimated the three‐year post‐acquisition gains to acquirer shareholders and found that hostile acquirers deliver significantly higher shareholder value than friendly acquirers. We found that friendly acquirers with high stock‐market ratings destroyed more value than hostile acquirers with a similar rating. Friendly acquirer top managers suffered greater job losses than those of hostile acquirers, perhaps paying the price for their inferior value‐creation performance. Our study provides evidence of the superior value‐creation performance of hostile acquirers and makes the case against takeover regulatory rules that may impede hostile takeovers.

Acquisition Targets and Motives in the Banking Industry

This paper uses a large sample of individual banking organizations, observed from 1996 to 2003, to investigate the characteristics that made them more likely to be acquired. We use a definition of acquisition that we consider preferable to that used in much of the previous literature, and we employ a competing-risk hazard model that reveals important differences that depend on the type of acquirer. Since interstate acquisitions became more numerous during this period, we also investigate differences in the determinants of acquisition between in-state and out-of-state acquirers. The hypothesis that acquisitions serve to transfer resources from less efficient to more efficient uses receives substantial support from our results, as do a number of other relevant hypotheses.

Using financial accounting information in the governance of takeovers: An analysis by type of acquirer

The substantial changes in the corporate governance mechanism of acquired firms that take place during the periods surrounding corporate acquisitions lead investors and other corporate financiers to an intensive search for financial accounting inputs for decision making. We examine whether financial accounting information on takeover targets provides useful input in the corporate governance mechanisms of US publicly traded takeovers in these periods. Our analysis is by four different types of acquirers: foreign firms, publicly traded US firms, private US acquirers, and leverage buyouts (LBOs). We expect that certain firm-specific financial accounting characteristics of takeover targets by type of potential acquirer affect valuation. To examine this expectation we construct a probability summary-value measure, composed of eight financial accounting variables, based on the type of acquirer. We also expect the probability summary-value measure to be useful for determining investment strategies in acquired firms. The empirical results strongly support our expectations.

The value of tax benefits and the cost of liquidating versus selling failed thrift institutions

This paper examines the 205 insolvent thrifts that were resolved in 1988 and assesses the cost savings obtained by selling 179 of the institutions through assisted acquisitions rather than liquidating them. It is hypothesized that the cost savings were determined by factors related both to the future viability of the acquired institution and the particulars of the deal arranged by the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation. The added value by selling a thrift is determined primarily by the level of core deposits obtained by the acquired thrift. However, the branch structure and purchased mortgage-servicing rights should also add franchise value to the firm. In addition to these factors, the analysis accounts for the tax benefits and other regulator forbearances associated with the deals. Other characteristics of the deals are also considered. It is found that core deposits, tax benefits, purchased mortgage-servicing rights, average branch size, and type of acquirer, as well as some other factors, were significant determinants of the cost savings obtained through selling an institution rather than liquidating it.