Using a global M&A data set, this paper provides evidence that the empirical observations relating public acquisitions to, at best, zero abnormal returns, and their stockfinanced subset to negative abnormal returns for acquiring firms around the deal announcement are not unanimous across countries. Acquirers beyond the most competitive takeover markets (the U.S., U.K., and Canada) pay lower premia and realize gains, while share-for-share offers are at least non-value destroying for their shareholders. In contrast, target shareholders within these markets gain significantly less, implying that the benefits generated are more evenly split between the involved parties.

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M&A deals create more value for acquiring firm shareholders post-2009 than ever before. Public acquisitions fuel positive and statistically significant abnormal returns for acquirers while stock-for-stock deals no longer destroy value. Mega deals, priced at least $500 mil, typically associated with more pronounced agency problems, investor scrutiny and media attention, seem to be driving the documented upturn. Acquiring shareholders now gain $62 mil around the announcement of such deals; a $325 mil gain improvement compared to 1990-2009. The corresponding synergistic gains have also catapulted to more than $542 mil pointing to overall value creation from M&As on a large scale. Our results are robust to different measures and controls and appear to be linked with profound improvements in the quality of corporate governance among acquiring firms in the aftermath of the 2008 financial crisis.

Abstract:Existing literature documents that large acquisitions destroy more value for acquiring shareholders than small acquisitions and attributes this to overpayment driven by managerial incentives and/or overconfidence. Nevertheless, the less intense competition, higher value at stake, lower managerial ownership and/or sizeable complexity of post-merger integration associated with large targets can result in lower acquisition premia. We examine these contradictory predictions and document a robust negative relation between target size and the premium paid in acquisitions. We also find that, despite the payment of lower premia, acquisitions of large targets destroy more value for acquirers and result in sharper increases in their return uncertainty around the deal announcement, implying that investors perceive these deals as more uncertain projects. Acquirers of large firms continue to underperform small target acquirers in the long-run in terms of both stock market and operating performance which indicates that they fail to deliver the assumed synergies. Our evidence suggests that large deals tend to be too big to succeed, irrespective of the premium paid.