Deal Initiation in Mergers and Acquisitions

Deal Initiation in Mergers and Acquisitions

Ronald W. Masulis University of New South Wales – Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN)

Serif Aziz Simsir Sabanci University

June 30, 2013
ECGI – Finance Working Paper No. #371

This study investigates deal initiation in the context of mergers and acquisitions. We investigate how bidder and target initiated merger offers differ. Our analysis reveals that target financial or economic weakness, target financial constraints and economy wide shocks are important motives for target-initiated deals. We also find that average bid premiums, target cumulative abnormal returns (CAR) measured around the merger announcement dates and the deal value to EBITDA multiples of target-initiated deals is significantly lower than in bidder-initiated deals. However, this gap cannot be explained by weaker financial conditions of targets immediately prior to merger announcements. After adjusting for self-selection, we find evidence that the private information held by target firms is the main driver of the lower premiums observed in target-initiated deals. Supporting this perspective, the premium gap between bidder- and target-initiated deals widen when the information asymmetry between the merging firms gets higher.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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