Distressed Acquisitions

55 Pages Posted: 25 Sep 2014

See all articles by Jean-Marie A. Meier

Jean-Marie A. Meier

University of Texas at Dallas

Henri Servaes

London Business School; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: August 2014

Abstract

Firms that buy distressed and bankrupt companies or some of these companies' assets earn excess returns that are at least 1.6 percentage points higher than when they make regular acquisitions. These returns come at the expense of the target firm's shareholders, while overall wealth gains are not affected. Returns to acquirers of distressed assets are higher when fewer large firms operate in the target firm's industry, and when firms in the target's industry have lower liquidity, and are financially constrained, thus limiting the number of potential buyers. They are lower when the M&A market in the target firm's industry is more vibrant, when the target's assets have more alternative uses, and when the economy is doing well. This evidence is consistent with the view that some firms can take advantage of fire sales by distressed and bankrupt companies needing to sell assets while restructuring.

Keywords: bankruptcy, distress, fire sales, mergers and acquisitions, restructuring

JEL Classification: G14, G32, G33, G34

Suggested Citation

Meier, Jean-Marie A. and Servaes, Henri, Distressed Acquisitions (August 2014). CEPR Discussion Paper No. DP10093. Available at SSRN: https://ssrn.com/abstract=2501566

Jean-Marie A. Meier (Contact Author)

University of Texas at Dallas ( email )

Jindal School of Management
800 W. Campbell Road
Richardson, TX 75080
United States

HOME PAGE: http://www.jean-mariemeier.com/

Henri Servaes

London Business School ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
+44 20 7000 8268 (Phone)
+44 20 7000 8201 (Fax)

HOME PAGE: http://faculty.london.edu/hservaes/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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