Wednesday, January 20, 2010
You'll have to excuse me but every time I hear "synergy" in connection with an acquisition, I immediately think of Dilbert running screaming from the conference room at hearing of the word. OK, I'm a cynic. But Martin and Shalev have a paper, Target-Specific Information and Expected Synergies in Acquisitions, and they find synergies (in the form of combined stock returns)! They also find there is real value in diligence as the likelihood of an acquirer withdrawing an offer decreases as the target specific information held by the would-be acquirer increases.
Abstract: This study investigates the relation between target’s firm-specific information expected synergies in acquisitions. We find that both combined (acquirer and target) stock returns around acquisition announcement and post acquisition performance of the combined entity positively associate with the pre-acquisition level of target firm-specific information. We also find that this association is driven mainly by cross-industry acquisitions. Further analysis suggests that while acquirer shareholders benefit from target firm-specific information, target shareholder returns around acquisition announcement decrease with target firm-specific information. Finally, we find that the likelihood of an announced acquisition to be withdrawn subsequent to the announcement decreases with target firm-specific information.