Once Bitten, Twice Shy: How Unconsummated Deals Affect Subsequent M&As

54 Pages Posted: 26 Apr 2014 Last revised: 9 Nov 2014

Peter Limbach

University of Cologne and Centre for Financial Research (CFR)

Bernhard Schwetzler

HHL Leipzig Graduate School of Management - Department of Finance

Johannes Reusche

Handelshochschule Leipzig (HHL)

Date Written: November 07, 2014

Abstract

We examine how a bidder’s failure to consummate a deal affects its subsequent M&As. After experiencing unconsummated M&As, firms choose smaller targets than before, more likely hire advisors, hire more advisors, and more likely make cash bids. Effects are strongest for bids directly succeeding unconsummated deals, but tend to linger over time and with CEOs. Deal failure exogenous to the acquirer, used for identification, is not associated with the aforementioned effects. Results suggest that firms reduce risks of deal problems and failure to protect their reputation for assessing and consummating investments. Consistent with this interpretation, we find negative abnormal announcement returns when deal failure repeats.

Keywords: bidder returns, deal structuring, M&A learning, repeat acquirers, unconsummated M&As

JEL Classification: G14, G34

Suggested Citation

Limbach, Peter and Schwetzler, Bernhard and Reusche, Johannes, Once Bitten, Twice Shy: How Unconsummated Deals Affect Subsequent M&As (November 07, 2014). Available at SSRN: https://ssrn.com/abstract=2429375 or http://dx.doi.org/10.2139/ssrn.2429375

Peter Limbach (Contact Author)

University of Cologne and Centre for Financial Research (CFR) ( email )

Albertus-Magnus-Platz
Köln, 50923
Germany

HOME PAGE: http://www.finance.uni-koeln.de

Bernhard Schwetzler

HHL Leipzig Graduate School of Management - Department of Finance ( email )

Jahnallee 59
D-04109 Leipzig
Germany
+49-341-9851-685 (Phone)
+49-341-9851-689 (Fax)

Johannes Reusche

Handelshochschule Leipzig (HHL) ( email )

Jahnallee 59
Leipzig, 04109
Germany

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