Mergers and acquisitions: determinants of gains to acquirers and targets

This thesis investigates three empirical issues in M&As. First, we test the hypothesis that corporate payout has a significant effect on acquirers’ gains. We find that overall the level of corporate payout has a strong positive relationship to the abnormal returns gained by acquirers during both the announcement period and the post-acquisition period. In our sample, non-paying acquirers are small firms and outperform paying acquirers in the short run and with initial bids. Paying acquirers, on the other hand, are large firms and experience positive gains across all bids in an acquisition programme. In the long run, paying acquirers consistently outperform non-paying acquirers regardless the method that is used to estimate gains. Our study reveals that corporate payout enhances acquirers’ performance especially in the long run post-acquisition period. Additionally, the gains accruing to non-paying acquirers are mainly from the market revaluation due to previous information asymmetry. Our results are consistent with previous evidence of corporate payout and robust across different deal and target characteristics.
The second empirical issue of our investigation is from the supply side of acquisitions. We test how a director and shareholder factor, a corporate factor and a market factor influence owners’ decision to sell their firms and affect their gains from the sale. We find that a director’s years of service, percentage of ownership held by the largest shareholder and the corporate liquidity ratio all have a negative relationship to the likelihood of the sale of the firm. For the gains from the sale, factors such as the director’s job security and the industrial clustering significantly reduce the size of the premium received by the target. Our results suggest that personal consideration of wealth maximization has a dominant effect on owners’ decision to sell and gains from the sale, and the acquisition activity is significantly affected by the market environment.
The final empirical chapter of this thesis focuses on the involvement of private acquirers. We find that, on average, target shareholders receive lower premiums from private acquirers than from public acquirers. Reverse takeovers that are made by private acquirers generate the lowest premium for target shareholders. In addition, our results indicate that private acquirers may suffer less from winner’s curse and market pressure, and this enhances private acquirers’ control over the cost of the acquisition. Furthermore, compared to public acquirers, private acquirers are more likely to seek the cooperation from target managers, and this also explains why private acquirers on average are able to secure the deal at a lower possible price. Our findings imply that because private acquirers pay a smaller premium than ceteris paribus, we would expect takeovers by private acquirers to be more successful than takeovers by public acquirers. Therefore, the further question needs to be answered is why public acquirers pay so much.