The Strategic Choice of Peers in M&A Valuations

50 Pages Posted: 25 Jun 2021

See all articles by Claudia Imperatore

Claudia Imperatore

Bocconi University - Department of Accounting

Gabriel Pundrich

University of Florida

Rodrigo S. Verdi

Massachusetts Institute of Technology (MIT)

Benjamin Yost

Boston College - Carroll School of Management

Date Written: June 17, 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 appraisal lawsuit risk, we show that target-sought FOs employ lower-valued peers when litigation risk is higher. Cross-sectionally, the bias is stronger when the target CEO is retained and owns fewer shares in the target. Although the selection of downward-biased peers reduces appraisal lawsuit likelihood, it is also associated with lower premiums. We conclude that FO valuations are driven, at least in part, by the strategic motive to mitigate litigation risk.

Keywords: Mergers; Fairness opinions; Peer groups; Benchmarking

JEL Classification: G24, G30, G34

Suggested Citation

Imperatore, Claudia and Pundrich, Gabriel and Verdi, Rodrigo S. and Yost, Benjamin, The Strategic Choice of Peers in M&A Valuations (June 17, 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

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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