Try Before You Buy: How Do Two-Stage Acquisitions Affect M&A Outcomes?

65 Pages Posted: 19 Oct 2018 Last revised: 4 Jan 2021

See all articles by Cara Vansteenkiste

Cara Vansteenkiste

UNSW Australia Business School, School of Banking and Finance

Date Written: December 27, 2020

Abstract

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

Vansteenkiste, Cara, Try Before You Buy: How Do Two-Stage Acquisitions Affect M&A Outcomes? (December 27, 2020). Available at SSRN: https://ssrn.com/abstract=3255983 or http://dx.doi.org/10.2139/ssrn.3255983

Cara Vansteenkiste (Contact Author)

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

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