Value Creation in Diversifying Acquisitions

Daniel Greene

Clemson University

Omesh Kini

Georgia State University

Jaideep Shenoy

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

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Date posted: April 7, 2013 ; Last revised: August 5, 2016

Suggested Citation

Greene, Daniel and Kini, Omesh and Shenoy, Jaideep, Value Creation in Diversifying Acquisitions (August 1, 2016). Available at SSRN: http://ssrn.com/abstract=2245728 or http://dx.doi.org/10.2139/ssrn.2245728

Contact Information

Daniel Greene
Clemson University ( email )
101 Sikes Ave
Clemson, SC 29634
United States
Omesh Kini
Georgia State University ( email )
University Plaza
Atlanta, GA 30303-3083
United States
404-651-2656 (Phone)
Jaideep Shenoy (Contact Author)
University of Connecticut ( email )
School of Business
2100 Hillside Road
Storrs, CT 06269
United States
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