Anticipation and Value Creation in M&As: A New Approach

Abstract

Assuming M&As are unpredictable, previous studies find targets profit a sizable bid premium while acquirer announcement returns are negligible. Recent literature documents various synergies in M&As. If synergy creation is a key driver of M&As, why are acquirer returns low? This paper addresses this question by proposing a new approach to incorporate partial anticipation signals into merger gains. The anticipation-adjusted gains are significantly higher than traditional estimates of merger gains, and M&As create substantial value for both target and acquirer firms. Using match-control firms and failed deals, I rule out that firms' ability to time takeovers drives these findings.

Keywords: Mergers; Acquisitions; Acquirer and target returns; Partial anticipation; Event studies

JEL Classification: G14; G31; G32; G34