Friday, June 25, 2010
Maksimovic et al have recently posted a paper, Private and Public Merger Waves, analyzing merger waves. It's not all that surprising that they find public companies are more likely going to be involved in cyclical merger waves than private companies. They suggest that access to capital is the determining factor in the public company's participation. I tend to agree - when firms have access to cheap capital they tend to go overboard. On the other hand, they suggest that acquisitions "on the wave" are more successful. I think there's a host of anecdotal and - if you give me a minute - empirical data that suggests buying at the crest of a merger wave never works out well.
Abstract: We examine the participation of public and private firms in merger waves and their outcomes. We show that public firms participate more in mergers and acquisitions than private firms and are more cyclical in their acquisitions. Public firms are also impacted more by macro factors including credit spreads and aggregate merger activities. Plants acquired on-the-wave realize more gain in productivity. We show that our results are not just driven by the fact that public firms have better access to capital. Using productivity data early in the firm's life, we find that better firms select to become public and that we can predict higher participation in productivity-increasing mergers and acquisitions ten and more years later after a firm's initial appearance. Our results suggest that a firm's potential can be identified early and that high potential firms become public in anticipation of accessing capital in the public markets when opportunities arise.