Do acquirers make intrinsically bad deals? A study of European transactions in the recent takeover wave

We assess whether European acquirers make intrinsically bad deals and identify a number of the drivers of inferior M&A quality. Hereby, we distinguish between too low expected synergies and a too high takeover premium. We explore this issue for a sample of 356 intra-European M&As between listed firms during the period 1997–2007. Our findings suggest that managerial hubris and herding behavior negatively affect the value of synergies, while bid offers are also more aggressive after a period of excellent acquirer stock performance. Conversely, we document no support as to the agency theory or the market-timing theory of acquisitions. We further consider the role of financial advisors in European M&As and find that expected synergies are larger for deals where the acquiring firm is assisted by a top-tier financial advisor. Yet, when synergies are positive, acquirers that are assisted by top-tier advisors pay out a larger fraction of the total gains to target shareholders.

Publication year:2011