Determinants of M&A takeover premiums: financial and strategic acquirers' perspective
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School of Business |
Master's thesis
Authors
Date
2024
Department
Major/Subject
Mcode
Degree programme
Finance
Language
en
Pages
62+10
Series
Abstract
This thesis examines the determinants of M&A premiums paid by strategic and financial acquirers in the European market from the late 1996 to 2024. Generally, previous research such as Fidrmuc et al. (2012) and Gorbenko & Malenko (2014), has primarily focused on deal and target features, leaving some premium determinants undisclosed. By incorporating unexplored market features such as GPD growth, stock performance, and periods of heightened M&A activity, this research aims to provide a comprehensive understanding of how deal and target features, along with broader market conditions, influence M&A pricing and the differences in premiums paid by strategic and financial buyers. The primary objective of this thesis is to analyse M&A takeover premiums and identify the determinants influencing these valuations. We start by examining the combined sample, then differentiate between strategic and financial buyers by creating subsamples to identify how their valuations differ, and which factors drive these differences. Additionally, we assess the impact of merger waves on takeover premiums both buyer types, ad-dressing a gap in previous research. Finally, we will examine whether market features can explain differences in takeover premiums between the two acquirer types, controlling for target features. Our findings suggest that financial buyers tend to pay lower takeover premiums than strategic buyers, with coefficients ranging from -2.6% to -5.7%. However, this effect is not statistically significant across all specifications, suggesting the evidence is not entirely conclusive across all models. The involvement of multiple bidders increases premiums, while larger target equity value and strong past performance reduce them. Financial buyers' premiums are better explained by deal and target features, with significant variables including the number of bid-ders (+), target performance (-), and target debt levels (-). Furthermore, during merger waves, financial buyers systematically pay lower premiums, while strategic buyers tend to value targets higher, though this is not statistically significant. Market features such as the high yield spread negatively impact financial buyers' premiums, indicating more cautious valuations under economic uncertainty, while the robustness check for strategic buyers showed mixed results. This research extends the foundational studies on M&A takeover premiums by incorporating additional deal and target features, to better understand the determinants of M&A pricing. Moreover, by introducing a broad range of market variables and identifying periods of heightened M&A activity, the study examines the impact of market timing on the differences in premiums paid by strategic and financial buyers, presenting completely new insights into how economic conditions influence M&A valuations. Additionally, the research broadens the scope of previous studies by focusing on European markets and incorporating recent data, providing a more comprehensive understanding of M&A pricing between strategic and financial buyers. This approach contributes to the literature by examining whether findings from U.S.-based studies apply to the European context and how market conditions drive differences in transaction premiums.Description
Thesis advisor
Puttonen, VesaKeywords
mergers & acquisitions, premium paid, strategic acquirer, financial acquirer, deal features, target features, market features, merger waves