Stefan M Lewellen, Thesis Supervisor Brian Spangler Davis, Thesis Honors Advisor
Keywords:
M&A Measuring Complexity Bid Premium
Abstract:
This paper looked at the effect complexity has on a Merger and or Acquisition. The working hypothesis is that during the acquisition of a company, on average “complicated” firms sell for a lower bid premium when compared to their “simple” counterparts. Twenty deals were examined, each being classified as “complex” or “simple” based on the underlying complexity of the target’s business. For each deal, deal characteristics, # of SIC codes, bid premium, and acquirer announcement returns were found. These were found by using multiple regression models and data summary tools. This data was then used to compare the effect complexity had on the deal process for the 10 complex deals versus 10 simple deals. The results support the idea that the complexity of a target firm has a direct correlation with a higher beta, bid premium, and acquirer announcement return when compared to “simple” deals. The potential reasons for this vary but are hypothesized to be due to potential larger synergies, poor corporate governance of complicated firms, and lack of available buyers. A larger sample size in the future would have to be used to come up with statistically significant results.
