Industry Asset Revaluations around Public and Private Acquisitions

60 Pages Posted: 1 May 2017 Last revised: 27 Jan 2020

See all articles by François Derrien

François Derrien

HEC Paris - Finance Department

Laurent Frésard

University of Lugano; Swiss Finance Institute

Victoria Slabik

HEC Paris (Groupe HEC), Finance Department

Philip Valta

University of Bern

Date Written: January 27, 2020

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, the “revaluation spread” is larger when peers’ valuations deviate more from fundamentals, varies with overall market misvaluation, predicts future industry returns, and is unrelated to peers’ and industries’ fundamentals. Our findings suggest an active market for real assets 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 (January 27, 2020). 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

University of Lugano ( email )

Lugano, 900
Switzerland

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

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