Try Before You Buy: How Do Two-Stage Acquisitions Affect M&A Outcomes?
65 Pages Posted: 19 Oct 2018 Last revised: 4 Jan 2021
Date Written: December 27, 2020
40% of toehold acquisitions in the global M&A market are two-stage deals in which the acquirer holds a long-term toehold before obtaining majority control. A key advantage of two-stage deals is acquirers’ access to inside information. Using the UTSA enactment as an exogenous shock that decreases information availability, I find that UTSA increased two-stage acquirer CARs and the use of two-stage deals, but not short-term toeholds. It however also increased two-stage deals’ signaling value, increasing long-term target run-ups. These results indicate that two-stage acquirers’ information advantage affects M&A outcomes by enabling better decision-making and by signaling information to the market.
Keywords: Mergers and Acquisitions, Minority Acquisitions, Toeholds, Asymmetric Information, Trade Secrets Protection, Alliances
JEL Classification: G34, G32
Suggested Citation: Suggested Citation