Industry Asset Revaluations around Public and Private Acquisitions
60 Pages Posted: 1 May 2017 Last revised: 3 May 2021
Date Written: May 3, 2021
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: Suggested Citation