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Largely constant average acquirer returns over the past four decades mask fundamental changes in the takeover market. Controlling for bidder composition, the common component of acquirer returns has increased by five percentage points relative to the 1980s. Offsetting this increase, the average bidder-specific component has declined. We propose a theory of bidder-specific synergies to help interpret these opposing trends. In our theory and in the data, acquirer returns increase with the extent to which synergies are unique to that bidder. The composition effect reflects bidder uniqueness. Overall, the evidence is consistent with rising merger synergies that have become less bidder specific. This paper was accepted by Victoria Ivashina, finance. Funding: A. Golubov acknowledges financial support from the Bank of Canada [Governor's Award]. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.02208. [ABSTRACT FROM AUTHOR]

Consistent with hypotheses underlying firm advertising, we find that targets with pretakeover advertising obtain higher premiums, whereas their acquirers earn lower announcement returns. These economically significant effects suggest that through advertising, targets increase their profile and negotiating power. Further, targets that advertise are more likely to initiate their takeovers, attract multiple bidders, receive enhanced bids, capture more merger rents, and even in failed acquisitions, experience a 1% permanent revaluation. The latter result differentiates between information asymmetry and behavioral explanations for the target advertising. Overall, the results support the hypothesis that management advertises to transmit information to investors and potential acquirers. This paper was accepted by Victoria Ivashina, finance. Funding: A. L. Tran acknowledges financial support from the Mergers and Acquisitions Research Centre at Bayes Business School. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.01534. [ABSTRACT FROM AUTHOR]

Motivated by the resource-based view (RBV) of the firm, this study explores whether mergers and acquisitions (M&As) can facilitate or impede a firm's marketing capabilities. Furthermore, this study also examines whether the influence of M&As on a firm's marketing capabilities is conditional to the type of deals, that is, domestic versus cross-border acquisitions. Using the difference-in-differences research design with a large sample of 15,509 firm-year observations for 898 US public acquirers, this study tests the postacquisition changes in a firm's marketing capabilities as reflected in the sensitivity of sales revenue to marketing-related expenditure. The results of the empirical tests show a postacquisition increase in sales sensitivity, suggesting that firms can enhance their marketing capabilities through M&As. However, it is also found that the enhancement in marketing capabilities is limited to domestic M&As and disappears for cross-border acquisitions. This result suggests that more salient differences in a firm's marketing environment attributable to cross-border acquisitions may disrupt a firm's marketing capabilities and dampen the positive effect of M&As. Fields of Specialization : Strategic management, marketing JEL CLASSIFICATION: G34; L25; M30 [ABSTRACT FROM AUTHOR]

Objective: To characterize the extent of private equity (PE) investment affecting surgical care. Background: Over the last decade, investor-backed, for-profit PE groups have invested in health care at an unprecedented rate, but the breadth of these investments affecting surgical practice remains largely unknown. Methods: Four nationally representative databases were used to identify all merger/acquisitions involving surgical practices between 2015 and 2019, determine PE investment in those transactions, and link the acquisitions with a physician data set. Results: A total of 1542 unique transactions were identified, of which 539 were financed by PE. Fifty-eight transactions were then classified into their respective categories within surgical care: digestive disease, orthopedics, urology, vascular surgery, and plastic/cosmetic surgery. These transactions accounted for 199 practice sites and 1405 physicians, averaging 24.2 physicians per transaction. Acquisition activity peaked in 2017, with a total of 63 practices involved. Digestive disease, urology, and orthopedic surgery accounted for the most activity. General surgeons were involved in a small share of the digestive disease practice acquisitions. Three "surgery-adjacent" categories were also identified: anesthesiology, ambulatory surgery centers, and surgical staffing firms. Among these, anesthesia was the largest category in terms of practices (194) and physicians (2660) involved in transactions across the study period. Medical Service Organizations were a key mechanism through which PE firms invested in surgical care. Conclusions: PE has engaged in substantial investment within surgical specialties, creating increased practice consolidation. These investments affect all levels of medical care and have notable implications for patients, practitioners, and policymakers. [ABSTRACT FROM AUTHOR]

We develop a measure of merger and acquisition (M&A) quality using accounting theory. This measure, implied return-on-equity improvement (IRI), quantifies the minimum improvement in the target's post-acquisition return on equity (ROE) the acquirer must attain to break even on the acquisition price. Employing a large sample of M&As from 1980 to 2018, we find that a high IRI is, on average, less attainable ex post and predicts worse acquirer financial performance. The acquirer's ROE growth over the first three years after the M&A is 11 percentage points lower for high-IRI M&As compared with low-IRI M&As. Worse high-IRI acquirer performance is observable through higher operating costs, tighter financial constraints, lower investments, and larger and more frequent goodwill impairments. We also find that IRI increases with acquiring chief executive officers' overconfidence, incentive misalignment, and difficulty in estimating synergies; IRI decreases with acquirers' financial discipline and due diligence effort. As such, overestimating synergies and managerial incentives that drive overpayment are potential mechanisms underlying IRI's negative association with acquirers' post-M&A performance. This paper was accepted by Eric So, accounting. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.01225. [ABSTRACT FROM AUTHOR]

We examine the organizational impact of CEO initial contract duration on corporate acquisitions. We argue that CEOs with shorter initial contract durations are more likely to experience time pressure. Consequently, they are more likely to manage time by engaging in corporate mergers and acquisitions (M&As) to achieve quick growth. In addition, these CEOs are more likely to engage in straightforward deals, acquiring targets that are private, divested, related, small, and using cash payment, because these types of transactions are quicker to complete, carry less risk, and generally come with good performance prospects. Using a sample of firms that underwent new CEO appointments between 1990 and 2017 and detailed employment contract data collected from SEC filings, we find strong support for our hypotheses. In addition, we apply UK corporate governance reform to CEO contract duration as an exogenous shock to show causal evidence of such relations. This study contributes to the literature on CEO contracts, corporate acquisitions, time management and strategic leadership. Supplemental Material: The online appendix is available at https://doi.org/10.1287/orsc.2022.16493. [ABSTRACT FROM AUTHOR]

We examine earnings management by cash bidders with debt financing. We hypothesise and find that highly leveraged cash bidders seeking to fund bids with debt manage earnings in the pre-merger period to secure the funding with better terms. Leverage plays a key role in this setting because we expect more leveraged bidders to find it more difficult to obtain the necessary funds with good lending terms to carry-out the bid, which increases their incentives to manage earnings. We consider earnings management through classification shifting and accruals, and find that classification shifting is more prevalent when managers appear to be constrained in their ability to manage accruals. Additionally, we find evidence that greater earnings management is associated with lower interest rates, larger debt amounts, and fewer financial covenants. This suggests that pre-merger earnings management efforts by highly leveraged cash bidders appear to be successful in securing debt funds with better terms. Whereas prior research on earnings management by bidders focuses primarily on stock bidders, we extend this research to cash bidders; we highlight that highly leveraged debt-financed bidders also engage in opaque financial reporting decisions prior to the bid announcement. [ABSTRACT FROM AUTHOR]

We study changes in corporate governance around mergers and acquisitions by comparing the ex-post corporate governance of the combined firm with the ex-ante weighted average governance of the bidder and target. We find that when the quality of the bidder governance is better than the target before the acquisition, the ex-post corporate governance quality of the combined firm is better than the ex-ante weighted average of each firm. We document post-acquisition improvement in the combined firm's board independence, audit committee independence, stock compensation, and minority shareholders protection, proposing that these firm-level attributes serve as potential channels to explain better corporate governance quality of the combined firm. The operating performance of the combined firm also improves when the bidder's pre-deal governance quality is better than the target. Our results support the portability theory of corporate governance, suggesting that poorly governed targets are better off if acquired by better-governed bidders. [ABSTRACT FROM AUTHOR]

While there is no doubt that M&A activity in the corporate sector follows wave-like patterns, there is no uniquely accepted definition of such a "merger wave" in a time series context. Count-data time series models are often employed to measure M&A activity and merger waves are then defined as clusters of periods with an unusually high number of M&A deals retrospectively. However, the distribution of deals is usually not normal (Gaussian). More recently, different approaches that take into account the time-varying nature of M&A activity have been proposed, but still require the a-priori selection of parameters. We propose adapting the combination of the Local Parametric Approach and Multiplier Bootstrap to a count data setup in order to identify locally homogeneous intervals in the time series of M&A activity. This eliminates the need for manual parameter selection and allows for the generation of accurate forecasts without any manual input. [ABSTRACT FROM AUTHOR]

We contrast the investment strategies of hedge funds and mutual funds around mergers and acquisitions (M&A). We find that hedge funds, on average, increase their holdings of soon‐to‐be takeover targets by 7.5% during the quarter before M&A announcements. Conversely, mutual funds, on average, reduce their equity holdings in impending targets by 3.0% over the same time period. The reduction in M&A holdings by mutual funds is less pronounced for more actively managed funds. Our results suggest that hedge funds enjoy superior access to private information or possess superior ability to process public information related to M&A transactions. [ABSTRACT FROM AUTHOR]

We explore whether employee interests affect the evaluation of acquisition offers by target boards of directors. Exploiting changes in state unemployment insurance (UI) as sources of exogenous variation in worker unemployment costs, we find that lower unemployment costs increase acquisition activity. The adoption of state constituency statutes strengthens this relation. Boards of target firms having high labor intensity, low short-term institutional ownership, headquartered in low population or high social capital counties, and with female independent directors, more often strongly weight employee interests. Higher UI levels are also associated with larger postacquisition layoffs. Our evidence supports theories rationalizing target boards' consideration of employee interests. This paper was accepted by Victoria Ivashina, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.01379. [ABSTRACT FROM AUTHOR]

This study investigates the financial performance of target companies involved in mergers and acquisitions (M&As), aiming to reveal the dynamics affecting these organizations pre- and post-transaction. Utilizing a comprehensive dataset, we analyze the financial outcomes of M&A deals globally, spanning from 2010 to 2019. Employing various financial ratios, such as liquidity ratios, profitability measures, leverage ratios, asset management ratios, and market valuation metrics, this research provides an understanding of how M&As influence the financial performance of target companies. The key findings suggest that target companies experience significant changes in their financial ratios post-acquisition, with liquidity and profitability ratios showing marked fluctuations. The study shows that the method of payment (cash vs. non-cash) and the size of the deal significantly influence the post-acquisition financial performance of target companies. Cash-based and lower-valued deals are found to have a more positive impact on financial stability and growth metrics. This research contributes to the existing body of knowledge by highlighting the marginal effects of acquisition strategies on target companies' financial performance. Our findings provide practical insights for potential acquirers, suggesting that the choice of acquisition method and deal size can significantly affect the financial outcomes of M&A activities. [ABSTRACT FROM AUTHOR]

Motivated by investor criticisms of current accounting standards, this study investigates whether differences exist in how acquired identifiable intangible assets relate to investors' expectations about the entity's cash flow prospects. Some investors assert that all acquired intangibles should be subsumed within goodwill, while others prefer separate recognition of identifiable intangibles only when they are strategically important sources of future cash flows. Still other investors call for separate recognition from goodwill only when identifiable intangibles are separable from the business, have defined useful lives, and have identifiable revenue streams (i.e., "wasting" intangibles). Consistent with some investor views, we find cross-sectional variation in the value relevance of identifiable intangibles based on differences in underlying asset characteristics. Our primary findings suggest that strategically important and wasting intangibles provide information different from that provided by goodwill. These findings inform standard setters as they evaluate recognition and disclosure alternatives for identifiable intangible assets. [ABSTRACT FROM AUTHOR]

Abstract Mergers and acquisitions (M&A) with financial technology (fintech) companies can be an effective way for firms to obtain new technologies and capabilities. However, the market reaction to fintech M&A announcements has received limited attention in the empirical academic literature. This study assesses the impact of fintech M&As on stock returns and examines whether macroeconomic variables influence the abnormal return of fintech M&As. Using event study analysis, we found that fintech M&A announcements generate a significant positive short-term abnormal return. Furthermore, we demonstrated that macroeconomic parameters, including Gross domestic product (GDP) growth, inflation rate, the share of services in GDP, and aggregate export growth, positively affect abnormal returns. In contrast, private investment, consumer spending, and an economy’s size negatively influence fintech M&As’ abnormal returns.

While there is no doubt that M&A activity in the corporate sector follows wave-like patterns, there is no uniquely accepted definition of such a “merger wave” in a time series context. Count-data time series models are often employed to measure M&A activity and merger waves are then defined as clusters of periods with an unusually high number of M&A deals retrospectively. However, the distribution of deals is usually not normal (Gaussian). More recently, different approaches that take into account the time-varying nature of M&A activity have been proposed, but still require the a-priori selection of parameters. We propose adapting the combination of the Local Parametric Approach and Multiplier Bootstrap to a count data setup in order to identify locally homogeneous intervals in the time series of M&A activity. This eliminates the need for manual parameter selection and allows for the generation of accurate forecasts without any manual input.

In times of the "Zeitenwende" European defence industrial companies face several challenges simultaneously: high fragmentation of the industrial ecosystem and product portfolio, a historic focus on small-volume production of complex weapons systems, the need to expand capacity fast, diverging European national security strategies, Europeanisation of the security sector, and a dominant US defence industry, among others. This article analyses the most likely strategies for the European defence industrial companies as a response to this situation. The analysis is based on 18 semi-structured expert interviews with representatives of the European defence industry, academia, and politicians to identify and assess the strategic options. Porter's Diamond framework is used to assess the impact of governmental influence, availability of production factors, historic chance, and structure of the value chain on the selection of strategies. The analysis focuses on pan-European industry consolidation, exports, self-funded R&D, internationalisation, co-operation with SMEs, and future large-scale defence co-operation programmes. [ABSTRACT FROM AUTHOR]

Mergers and acquisitions (M&A) often lead to combined or supplementary offerings, where the products, or services of the merging or acquiring companies are integrated into a new combined product portfolio. Nevertheless, integrating the offerings can be challenging due to structural differences or inconsistencies in the products. Systematizing product-related data assets may also be necessary to ensure a smooth integration process and optimization of operations. A structured, consistent foundation for product data might be needed to combine, migrate, and manage data across different systems. Nevertheless, the systematization of data assets during M&A may also be challenging. This study explores combining the offerings through product structure and productization focus to address the challenges in the consistency of products and data. An example of integrating offerings during M&A is presented. The findings indicate the potential of productization logic through a commercial and technical focus on the product structure in unifying the offering and gaining consistency in data. The approach may allow for identifying complementarities and overlapping offerings and resources to achieve synergies in marketing & sales and delivery. The presented logic may serve as a vehicle for integrating the business processes and information technology (IT) systems of two companies by providing a uniform structure for product data that different business processes create, use, and store in various IT systems.

Abstract Background The Brazilian supplementary health market has undergone transformations in recent years due to constant mergers and acquisitions of by large corporations, contributing to the increase in market concentration, especially in the poorest and least developed regions of the country. Thus, given the care it provides and its economic relevance, understanding the fundamentals of these movements, the likely consequences and trends for the health market are relevant, important, and strategic. Objective To understand the general and specific context of Brazilian supplementary health, its scenarios, and trends, with emphasis on the analysis of market concentration and recent mergers and acquisitions. Methodology The research is applied, descriptive and exploratory and uses secondary data from various sources, submitted to quantitative data analysis methods. The data are organized into three groups: historical and regulatory documents; industry data; and market. Results The results show the growing concentration of the market promoted by large publicly traded corporations, the growing relevance of tech startups on the healthcare landscape, the predominant use of the relative valuation model, with implicit multiples for asset pricing and the prevalence of corporate health plans. Conclusion The growing concentration of the system projects a market with fewer options and less competitiveness, since the growth of large operators is evident, in addition to the relevant increase in the number of complaints from users of the system, which signals the growing gap between the expectations of users and the levels of quality care offered. The study also highlights the predominance of corporate health plans, revealing the direct relationship between access to supplementary health services and employability rates. The analysis of M&A operations, in addition to the increase in market concentration, reveals the prevalence of the use of the relative valuation model and implicit multiples for the pricing of traded assets. This denotes the future expectation of wealth generation, at least equivalent to the historical series of the sector, on the part of investors, whose frustration may signal the decreasing attractiveness of resources and M&A operations in the sector in the coming years.