Disentangling acquisition premia: Evidence from the global market for corporate control

Our empirical analysis of 403 acquisitions completed globally between 2007 and 2015 uses a holistic approach to explain the key determinants of premia paid by acquirers, addressed by distinct literature streams. Our results show that overconfident, cash-generating acquirers overpay the targets. Higher premia are justified for larger-sized, high-growth targets, nonconglomerate acquisitions, and when the consideration is paid in stock. Acquirers embed expected operating synergies in premia offered to target shareholders. However, while cost-cutting synergies, more reliably achieved in post-merger integration, are easy to disclose and price, revenue enhancement synergies, requiring exceptional managerial capabilities, are of longer-term nature but more uncertain, thus leading acquirers to precautionarily withhold them in premium pricing. Financial synergies, arising from combining weakly or negatively correlated businesses, are not typically priced upfront.