The interplay between target firm R&D, acquirer debt financing and takeover premia
Mataigne, Virginie De Maeseneire, Wouter Luypaert, Mathieu
Mataigne, Virginie
De Maeseneire, Wouter
Luypaert, Mathieu
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Publication Type
Journal article with impact factor
Editor
Supervisor
Publication Year
2018
Journal
Applied Economics Letters
Book
Publication Volume
25
Publication Issue
7
Publication Begin page
451
Publication End page
455
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Abstract
The level of acquisition premia is of paramount importance in light of the vast sums paid to target shareholders and the often disappointing returns realized by corporate buyers. In this letter, we focus on the impact of R&D investments by targets on the acquisition premium contingent upon the acquirer's financing choices. Based on a unique hand-collected sample of 407 listed European transactions, we find a positive effect of target R&D on premia paid. Yet, when acquirers finance the acquisition of an R&D intensive target with debt, the positive relation disappears. Consequently, we establish that financing sources affect bidding strategies of acquiring companies in case of difficult-to-value targets.
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Keywords
Mergers, Research & Development (R&D), Acquisitions, Financing