Deal-Makers or Deal-Takers : An Empirical Analysis of Target-Initiated M&A Transactions

Abstract

The purpose of this paper is to introduce research on deal initiation in the Norwegian merger & acquisition (M&A) market. We have manually collected and assessed deal initiation data in order to investigate 1) the motivation behind target initiation and 2) its effect on target premiums. We find that companies struggling financially, especially with short term obligations, are more likely to pursue a sale of their company. Our finding suggests that a unit decrease in a company’s Altman Z-score represent 10,4% higher probability of target initiation. Furthermore, our analysis shows that the higher the percentage of shares owned by the CEO is, the more likely the company is to initiate the deal. Target-initiated transactions on average receive 13,5% in takeover-premium. This is a significantly lower premium than transactions initiated by acquirers, receiving 30,5% more than their market price. We find the act of target initiation to be a significant determinant, solely decreasing the premium by 14,5%. In conclusion, our results suggest that deal initiation has a meaningful impact on M&A outcomes in Norway and especially on the premiums achieved.