The Acquisition Performance of S&P 500 Firms

Abstract

We compare the acquisition performance of S&P 500 and non-S&P 500 firms after controlling for differences in firm characteristics. During 1980-2004, S&P 500 firms make a greater number and dollar value of acquisitions. They more often use cash payment and tender offers, the market reacts better to the announcement of their acquisitions, and they are more likely to complete their deals. The target shareholders seem to attach incremental value to joining with an S&P 500 firm and accept a lower premium in stock deals. The S&P 500 acquirers also have stronger pre-acquisition operating performance, choose targets with stronger pre-acquisition performance, and realize significant gains in post-acquisition performance. We interpret the combined evidence as consistent with the efficiency hypothesis, which suggests that S&P 500 firms are more efficiently managed firms and make better acquirers.

Keywords: S&P 500, Mergers and Acquisitions, Efficiency, Operating Performance

JEL Classification: G34