Private and Public Merger Waves

Abstract

We document that public firms participate more than private firms as buyers and sellers of assets in merger waves and their participation is affected more by credit spreads and aggregate market valuation. Public firm acquisitions realize higher gains in productivity, particularly for on-the-wave acquisitions and when the acquirer's stock is liquid and highly valued. Our results are not driven solely by public firms' better access to capital. Using productivity data from early in the firm's life, we find that better private firms subsequently select to become public. Initial size and productivity predict asset purchases and sales 10 and more years later.PRIOR RESEARCH ESTABLISHES THAT the market for corporate assets is procyclical. Mergers and acquisitions tend to cluster in time.1 However, what causes firms to participate in these waves, and whether acquisitions that occur on the waves lead to the same efficiency outcomes as mergers that occur off the waves, remain open questions. The extent to which private firms participate in merger waves and whether their participation is affected by similar demand and supply factors that affect public firms also remain unanswered. At one extreme, acquisition waves may occur because investment opportunities also occur in * Maksimovic and Yang are from the University of Maryland and Phillips is from the University of Southern California and NBER. This research was supported by NSF grant #0965328 and was conducted while the authors were Special Sworn Status researchers of the U.S. Census Bureau at the Center for Economic Studies. We would like to thank the Editor (Cam Harvey), an anonymous referee, and an Associate Editor for many helpful comments. In addition we wish to thank JoseMiguel Gaspar, Jarrad Harford, David Robinson, and seminar participants at Florida State University, Norwegian School of Economics and Business Administration, UCLA, University of Paris Dauphine, IFN conference at Stockholm, York University, University of California at Riverside, University of Rochester, California Corporate Finance Conference, UCLA/USC Annual Conference, NBER Corporate Finance Group, UBC 2010 Summer Conference, University of Virginia, Washington University 2010 Corporate Finance Conference, and the WFA 2010 meetings. We also thank researchers at the Center for Economic Studies for their helpful comments, and Antonio Falato at the Federal Reserve for providing data on Commercial and Industrial (C&I) loan rates. Research results and conclusions expressed are those of the authors and do not necessarily reflect the views of the Census Bureau. This paper has been screened to ensure that no confidential data are revealed.1 Mitchell and Mulherin (1996) and Harford (2005) analyze merger waves by public firms. Netter, Stegemoller, and Wintoki (2011) show that when including small deals and private acquirers this pattern is much smoother than the pattern with only large and public deals. See Andrade, Mitchell, and Stafford (2001) and Betton, Eckbo, and Thorburn (2008) for two surveys o...

Corporate Acquisitions, Diversification, and the Firm's Life Cycle

“…We find that the acquisition rate is increasing in the number of delistings. Not surprisingly given the results of Maksimovic, Phillips, and Yang (2013), a higher credit spread is associated with a lower acquisition rate. Firms with a credit rating acquire more, and so do firms with lower leverage.…”

Leveraged Buyouts: A Survey of the Literature

“…An abundant body of empirical literature has documented the drivers of waves in M&A activity (see e.g., Maksimovic, Phillips, and Yang (2013), Renneboog (2008a, 2011b), Andrade, Mitchell, and Stafford (2001), Auster and Sirower (2002) and Golbe and White (1993)). …”

Determinants of Cross-Border Mergers and Acquisitions: A Comprehensive Review and Future Direction

“…This would happen if bidding firm puts more emphasis on valuation process of a target firm through a planned approach, which is important in international deals (Mukherji, Mukherji, Dibrell, & Francis, 2013). In addition, premium paid to target shareholders also influenced by external factors such as number of competitive bids, nature of the business, controlling power of the industry, stock market conditions, and institutional rules of the host country (Akerlof, 1970;Chari & Chang, 2009;Maksimovic, Phillips, & Yang, 2013), and social and behavioral factors (Malhotra & Zhu, 2013). While supporting aforementioned streaks, we would wish to comment that fixing high premium or less premium also depend on acquirer skills, expertise and prior acquisition experience and M&A advisors involving in the bargaining process.…”