Value Creation in Diversifying Acquisitions
Georgia State University
University of Connecticut
August 1, 2016
We examine the sources of value creation in diversifying acquisitions. Our proxies for the merging firms’ change in purchasing concentration are positively related to the combined wealth effect of merging firms, negatively related to the change in cogs-to-sales of merging firms, and negatively related to the wealth effects of common supplier industry firms and rival firms. Furthermore, we document post-acquisition decreases in output prices for the main common supplier industry. These results highlight the benefits of pooled purchasing in diversifying acquisitions. Additionally, greater asset complementarities and increased debt capacity also generate larger gains for the merging firms in these deals.
Number of Pages in PDF File: 70
Keywords: corporate finance, diversifying acquisitions, conglomerate acquisitions, buyer power, product market effects, asset complementarities, financial synergies
JEL Classification: G34, L11, L22, L25, D57
Date posted: April 7, 2013 ; Last revised: August 5, 2016
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