The Strategic Choice of Peers in M&A Valuations

54 Pages Posted: 25 Jun 2021 Last revised: 29 Nov 2021

See all articles by Claudia Imperatore

Claudia Imperatore

Bocconi University - Department of Accounting; Bocconi University

Gabriel Pundrich

University of Florida

Rodrigo S. Verdi

Massachusetts Institute of Technology (MIT)

Benjamin Yost

Boston College - Carroll School of Management

Date Written: November 25, 2021

Abstract

We examine the strategic choice of peer comparables in fairness opinions (FOs) used in M&A valuations. Using a hand-collected sample of peer comparable analyses and a regulatory shock to merger litigation risk, we show that target-sought FOs employ lower-valued peers when litigation risk is higher. The effect is concentrated in deals featuring greater conflicts of interest between target management and outside shareholders and when the target CEO is incentivized to successfully complete the deal. Furthermore, the selection of downward-biased peers reduces the likelihood of appraisal lawsuits, but is also associated with lower premiums. In contrast to prior work suggesting that target-sought FOs are used to negotiate a higher takeover price, our findings imply that FO valuations are driven, at least in part, by the desire to mitigate litigation risk and facilitate successful deal completion.

Keywords: Mergers; Fairness opinions; Peer groups; Benchmarking

JEL Classification: G24, G30, G34

Suggested Citation

Imperatore, Claudia and Imperatore, Claudia and Pundrich, Gabriel and Verdi, Rodrigo S. and Yost, Benjamin, The Strategic Choice of Peers in M&A Valuations (November 25, 2021). Available at SSRN: https://ssrn.com/abstract=3869109 or http://dx.doi.org/10.2139/ssrn.3869109

Claudia Imperatore

Bocconi University - Department of Accounting ( email )

Via Roentgen 1
Milan, 20136
Italy

Bocconi University ( email )

Gabriel Pundrich

University of Florida ( email )

PO Box 117165, 201 Stuzin Hall
Gainesville, FL 32610-0496
United States

Rodrigo S. Verdi (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

Sloan School of Management
100 Main Street E62-666
Cambridge, MA 02142
United States
(617) 253 2956 (Phone)

Benjamin Yost

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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