Industry Asset Revaluations around Public and Private Acquisitions

60 Pages Posted: 1 May 2017 Last revised: 3 May 2021

See all articles by François Derrien

François Derrien

HEC Paris - Finance Department

Laurent Frésard

Universita della Svizzera italiana (USI Lugano); Swiss Finance Institute

Victoria Slabik

HEC Paris (Groupe HEC), Finance Department

Philip Valta

University of Bern

Date Written: May 3, 2021

Abstract

Revaluations of industry peers around horizontal acquisitions are negative when targets are private, but positive when they are public. We posit this “revaluation spread” arises because acquiring managers favor private targets when public firms are overvalued. Targets’ ownership status thus conveys information about industry assets’ misvaluation and triggers predictable revaluations. Supporting this idea, private acquisitions occur when private targets appear “cheaper” than public firms based on valuation multiples or the trading activity of industry insiders. The revaluation spread varies with overall market misvaluation, predicts future industry returns, and is unrelated to peers’ and industries’ fundamentals. An active market for real assets thus fosters the ability of stock prices to reflect fundamentals.

Keywords: Merger & acquisitions; Information; Revaluation; Stock returns; Peers; Misvaluation

JEL Classification: G34

Suggested Citation

Derrien, François and Frésard, Laurent and Slabik, Victoria and Valta, Philip, Industry Asset Revaluations around Public and Private Acquisitions (May 3, 2021). Available at SSRN: https://ssrn.com/abstract=2960576 or http://dx.doi.org/10.2139/ssrn.2960576

François Derrien (Contact Author)

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France
33 1 39 67 72 98 (Phone)

HOME PAGE: http://www.hec.fr/derrien

Laurent Frésard

Universita della Svizzera italiana (USI Lugano) ( email )

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Victoria Slabik

HEC Paris (Groupe HEC), Finance Department ( email )

France

Philip Valta

University of Bern ( email )

Engehaldenstrasse 4
Bern, 3012
Switzerland

HOME PAGE: http://https://www.ifm.unibe.ch/about_us/people/prof_dr_valta_philip/

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