2nd Annual Cass M&A Conference (London)

2nd Annual Cass M&A Conference (London)

  • 22 August 2017
  • London

The Mergers and Acquisitions Research Centre (MARC) at Cass Business School in cooperation with the European Corporate Governance Centre (ECGI) is holding the second annual Cass Mergers and Acquisitions Research Centre Conference at Cass Business School, City University London on Monday. ​ This year on 22 August 2017, the conference included original theoretical and empirical papers covering issues related to mergers and acquisitions (M&A), including deal structure from financing to integration, corporate governance in M&A, regulatory changes, domestic and cross border transactions, among others.

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Information

Address:
Cass Business School, City University London
Contact:
Elaine McPartlan
European Corporate Governance Institute (ECGI)

CASS 2017 Programme

08:30

Merger Activity, Stock Prices, and Measuring Gains from M&A

Speakers:
Back to full programme

Merger Activity, Stock Prices, and Measuring Gains from M&A

Time:
08:30h

With five percent of U.S. public firms acquired in a typical year, we show rational expectations perpetually embed a significant portion of acquisition gains into firms’ stock prices. We estimate 10% of a typical firm’s stock price can be attributed to general merger anticipation. As a result, the unobserved (anticipated) portion of the merger premium is roughly one-third of the observed premium, implying M&A event studies greatly understate the gain from mergers. Consistent with this hypothesis, announced deal premiums are strongly negatively correlated with the probability a firm will be acquired. Finally, we show a strong link from merger activity to stock prices, with each dollar of announced merger premiums associated with up to $44 of increased aggregate market valuation.

Speakers

Conference Documents

09:30

Tapping into Financial Synergies: Alleviating Financial Constraints Through Acquisitions

Speakers:
Back to full programme

Tapping into Financial Synergies: Alleviating Financial Constraints Through Acquisitions

Time:
09:30h

The paper examines whether financially constrained firms are able to use acquisitions to ease their constraints. The results show that acquisitions do ease financing constraints for constrained acquirers. Relative to unconstrained acquires, financially constrained firms are more likely to use undervalued equity to fund acquisitions and to target unconstrained and more liquid firms. Using a propensity score matched sample in a difference-in-difference framework, the results show that constrained acquirers become less constrained post-acquisition and relative to matched non- acquiring firms. This improvement is more pronounced for diversifying acquisitions and constrained firms that acquire rather than issue equity and retain the proceeds. Following acquisition, constrained acquirers raise more debt and increase investments, consistent with experiencing reductions in financing constraints relative to matched non-acquirers. These improvements are not seen for unconstrained acquirers. Finally, the familiar diversification discount is non- existent for financially constrained acquirers.

Speakers

Conference Documents

10:30

A BIT Goes a Long Way: Bilateral Investment Treaties and Cross-border Mergers

Speakers:
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A BIT Goes a Long Way: Bilateral Investment Treaties and Cross-border Mergers

Time:
10:30h

We examine whether Bilateral Investment Treaties (BITs) remove impediments to foreign investment by helping enforce contracts and protecting the property rights of foreign investors. We find that BITs have a large, positive effect on cross-border mergers. The probability and dollar volume of mergers between two given countries more than doubles after the signing of a BIT. Most of this increase is driven by capital flowing from developed economies to developing economies, shedding light on the long-standing Lucas Paradox as to why most cross-border capital still flows to developed countries. Additionally, most of our results are driven by target countries with “medium” levels of political risk, consistent with popular views that BITs are ineffective for countries with very high risk and not necessary for countries with low political risk.

Speakers

Conference Documents

11:30

International Trade and the Propagation of Merger Waves

Speakers:
Back to full programme

International Trade and the Propagation of Merger Waves

Time:
11:30h

Cross-border merger activity is growing in importance. We map the global trade network each year from 1989 to 2014 and compare it to cross-border and domestic merger activity. Trade-weighted merger activity in trading partner countries has statistically and economically significant explanatory power for the likelihood a given country will be in a merger wave state, both at the cross-border and the domestic levels, even controlling for its own lagged merger activity. The strength of trade as a channel for transmitting merger waves varies over time and is affected by import tariffs cuts, Euro, EU, EEA, and WTO entry. Overall, the full trade network helps our understanding of merger waves and how merger waves propagate across borders.

Speakers

Conference Documents

12:30

Inefficiencies and Externalities from Opportunistic Acquirers

Speakers:
Back to full programme

Inefficiencies and Externalities from Opportunistic Acquirers

Time:
12:30h

If opportunistic acquirers can buy targets using overvalued shares, then there is an inefficiency in the merger and acquisition (M&A) market: The most overvalued rather than the highest-synergy bidder may buy the target. We quantify this inefficiency using a structural estimation approach. We find that the M&A market allocates resources efficiently on average. Opportunistic bidders crowd out high-synergy bidders in only 7% of transactions, resulting in an average synergy loss equal to 9% of the target’s value in these inefficient deals. The implied average loss across all deals is 0.63%. Although the inefficiency is small on average, it is large for certain deals, and it is larger when misvaluation is more likely. Even when opportunistic bidders lose the contest, they drive up prices, imposing a large negative externality on the winning synergistic bidders.

Speakers

Conference Documents

14:30

Political Influence and Merger Antitrust Reviews

Speakers:
Back to full programme

Political Influence and Merger Antitrust Reviews

Time:
14:30h

We document that firms in the constituencies of powerful U.S. politicians that oversee antitrust regulators receive favorable mergers and acquisitions antitrust review outcomes. To establish identification, we exploit a subset of politician turnover events that are plausibly exogenous as well as a falsification test using powerful politicians with no jurisdiction over antitrust regulators. Politician incentives to influence merger antitrust review outcomes appear to be driven by lobbying, contributions, and prior business connections. Our findings suggest that merger antitrust reviews are not independent of self-serving political intervention.

Speakers

Conference Documents

14:30

Product Market Dynamics and Mergers and Acquisitions: Insights from the USPTO Trademark Data

Speakers:
Back to full programme

Product Market Dynamics and Mergers and Acquisitions: Insights from the USPTO Trademark Data

Time:
14:30h

Using a large and unique trademark-merger dataset over the period 1983 to 2016, we show that companies with large trademark portfolios, newer trademarks, and fast growth in trademarks are more likely to be acquirers, while companies with newer and more focused trademarks, and slower growth in trademarks are more likely to be target firms. Further, firms with overlapping product lines as captured by trademark similarity are more likely to be merged and these deals are associated with high combined announcement period returns. Post-merger, merger partners with overlapping product lines cancel more trademarks as well as to register fewer new trademarks, and are associated with lower costs of goods sold, lower advertising expenses, higher return on sales, and larger market shares. We conclude that eliminating product market competitors is an important driver of acquisitions.

Speakers

Conference Documents

Speakers

Presentations

Merger Activity, Stock Prices, and Measuring Gains from M&A

Back to all presentations

Merger Activity, Stock Prices, and Measuring Gains from M&A

Time:
08:30h

With five percent of U.S. public firms acquired in a typical year, we show rational expectations perpetually embed a significant portion of acquisition gains into firms’ stock prices. We estimate 10% of a typical firm’s stock price can be attributed to general merger anticipation. As a result, the unobserved (anticipated) portion of the merger premium is roughly one-third of the observed premium, implying M&A event studies greatly understate the gain from mergers. Consistent with this hypothesis, announced deal premiums are strongly negatively correlated with the probability a firm will be acquired. Finally, we show a strong link from merger activity to stock prices, with each dollar of announced merger premiums associated with up to $44 of increased aggregate market valuation.

Conference Documents

Tapping into Financial Synergies: Alleviating Financial Constraints Through Acquisitions

Back to all presentations

Tapping into Financial Synergies: Alleviating Financial Constraints Through Acquisitions

Time:
09:30h

The paper examines whether financially constrained firms are able to use acquisitions to ease their constraints. The results show that acquisitions do ease financing constraints for constrained acquirers. Relative to unconstrained acquires, financially constrained firms are more likely to use undervalued equity to fund acquisitions and to target unconstrained and more liquid firms. Using a propensity score matched sample in a difference-in-difference framework, the results show that constrained acquirers become less constrained post-acquisition and relative to matched non- acquiring firms. This improvement is more pronounced for diversifying acquisitions and constrained firms that acquire rather than issue equity and retain the proceeds. Following acquisition, constrained acquirers raise more debt and increase investments, consistent with experiencing reductions in financing constraints relative to matched non-acquirers. These improvements are not seen for unconstrained acquirers. Finally, the familiar diversification discount is non- existent for financially constrained acquirers.

Conference Documents

A BIT Goes a Long Way: Bilateral Investment Treaties and Cross-border Mergers

Back to all presentations

A BIT Goes a Long Way: Bilateral Investment Treaties and Cross-border Mergers

Time:
10:30h

We examine whether Bilateral Investment Treaties (BITs) remove impediments to foreign investment by helping enforce contracts and protecting the property rights of foreign investors. We find that BITs have a large, positive effect on cross-border mergers. The probability and dollar volume of mergers between two given countries more than doubles after the signing of a BIT. Most of this increase is driven by capital flowing from developed economies to developing economies, shedding light on the long-standing Lucas Paradox as to why most cross-border capital still flows to developed countries. Additionally, most of our results are driven by target countries with “medium” levels of political risk, consistent with popular views that BITs are ineffective for countries with very high risk and not necessary for countries with low political risk.

Conference Documents

International Trade and the Propagation of Merger Waves

Back to all presentations

International Trade and the Propagation of Merger Waves

Time:
11:30h

Cross-border merger activity is growing in importance. We map the global trade network each year from 1989 to 2014 and compare it to cross-border and domestic merger activity. Trade-weighted merger activity in trading partner countries has statistically and economically significant explanatory power for the likelihood a given country will be in a merger wave state, both at the cross-border and the domestic levels, even controlling for its own lagged merger activity. The strength of trade as a channel for transmitting merger waves varies over time and is affected by import tariffs cuts, Euro, EU, EEA, and WTO entry. Overall, the full trade network helps our understanding of merger waves and how merger waves propagate across borders.

Conference Documents

Inefficiencies and Externalities from Opportunistic Acquirers

Back to all presentations

Inefficiencies and Externalities from Opportunistic Acquirers

Time:
12:30h

If opportunistic acquirers can buy targets using overvalued shares, then there is an inefficiency in the merger and acquisition (M&A) market: The most overvalued rather than the highest-synergy bidder may buy the target. We quantify this inefficiency using a structural estimation approach. We find that the M&A market allocates resources efficiently on average. Opportunistic bidders crowd out high-synergy bidders in only 7% of transactions, resulting in an average synergy loss equal to 9% of the target’s value in these inefficient deals. The implied average loss across all deals is 0.63%. Although the inefficiency is small on average, it is large for certain deals, and it is larger when misvaluation is more likely. Even when opportunistic bidders lose the contest, they drive up prices, imposing a large negative externality on the winning synergistic bidders.

Conference Documents

Political Influence and Merger Antitrust Reviews

Back to all presentations

Political Influence and Merger Antitrust Reviews

Time:
14:30h

We document that firms in the constituencies of powerful U.S. politicians that oversee antitrust regulators receive favorable mergers and acquisitions antitrust review outcomes. To establish identification, we exploit a subset of politician turnover events that are plausibly exogenous as well as a falsification test using powerful politicians with no jurisdiction over antitrust regulators. Politician incentives to influence merger antitrust review outcomes appear to be driven by lobbying, contributions, and prior business connections. Our findings suggest that merger antitrust reviews are not independent of self-serving political intervention.

Conference Documents

Product Market Dynamics and Mergers and Acquisitions: Insights from the USPTO Trademark Data

Back to all presentations

Product Market Dynamics and Mergers and Acquisitions: Insights from the USPTO Trademark Data

Time:
14:30h

Using a large and unique trademark-merger dataset over the period 1983 to 2016, we show that companies with large trademark portfolios, newer trademarks, and fast growth in trademarks are more likely to be acquirers, while companies with newer and more focused trademarks, and slower growth in trademarks are more likely to be target firms. Further, firms with overlapping product lines as captured by trademark similarity are more likely to be merged and these deals are associated with high combined announcement period returns. Post-merger, merger partners with overlapping product lines cancel more trademarks as well as to register fewer new trademarks, and are associated with lower costs of goods sold, lower advertising expenses, higher return on sales, and larger market shares. We conclude that eliminating product market competitors is an important driver of acquisitions.

Speakers

Conference Documents