Bidder earnings forecasts in mergers and acquisitions

Abstract

This study finds that pro-forma earnings forecasts by bidding firms during acquisitions are associated with a higher likelihood of deal completion, expedited deal closing, and with a lower acquisition premium − but only in stock-financed acquisitions. Analysts also respond to these forecasts by revising their forecasts for the bidder upward. However, the benefits of forecast disclosure only accrue to bidders with a strong forecasting reputation prior to the acquisition. Explaining why not all bidders forecast, we document a higher likelihood of post-merger litigation and CEO turnover for bidders with a weak forecasting reputation and for those that underperform post-merger.

A Meta‐Analytic Integration of Acquisition Performance Prediction

“…The percentage paid for a target firm in comparison to its market capitalization prior to acquisition announcement was coded as a measure of acquisition premium (e.g., Amel‐Zadeh and Meeks, 2019).…”

Voluntary disclosure volume: Evidence from acquiring firm's press releases during M&A

“…Companies significantly increase their voluntary disclosure levels before the M&A announcement and therefore the significant impact on the stock performance of acquiring firms (Ahern & Sosyura, 2014). Researchers find that acquiring firms are more likely to provide more information through various venues at merger announcements when the mergers are financed with stock and when the transactions are large (eg, Amel‐Zadeh & Meeks, 2019; Kimbrough & Louis, 2011). In addition, a higher level of disclosures provides value to the transaction, such as increasing the likelihood of acquisition completion, reducing the time to completion, and resulting in more favorable market reactions to merger announcements (Amel‐Zadeh & Meeks, 2019; Kimbrough & Louis, 2011).…”

“…The investors would expect the acquiring firms’ management to inform them about the M&A risk level and its related impact (Ott, 2020). To address the investors’ information demand, acquiring firms may engage in more voluntary disclosure at the announcement time to influence the investors’ responses to the merger announcement, such as supplementing press releases with conference calls (Fraunhoffer et al., 2018; Kimbrough & Louis, 2011), synergy disclosure (Dutordoir et al., 2014), and earnings forecasts (Amel‐Zadeh & Meeks, 2019). We are not clear, however, whether acquiring firms would keep supplementing more information after the initial announcement and in which condition that acquiring firms have incentives to engage in a voluntary disclosure to positively affect the market's response during the transaction.…”

“…Besides, we examine whether management varies the news updates based on certain features of the transaction. Prior studies have documented that voluntary disclosure during M&A is significantly related to certain transaction characteristics, such as the finance methods and the economic significance of the transaction (eg, Amel‐Zadeh & Meeks, 2019; Dutordoir et al., 2014; Kimbrough & Louis, 2011).…”

The Influence of the Globalisation Factor on Premiums in Merger and Acquisition Deals of Electric Power Companies

“…The issues of assessing financial indicators in M&A deals were considered in the papers of Amel-Zadeh [2], Dhaliwal [5], Rahman [10], Baker [4], Alhenawi [14], Sterkhov [15].…”