Closing the deal
Uncovering the causes of M&A deal duration
Why are some merger and acquisition (M&A) deals closed relatively quickly while others take much more time? The answer to this question is important, because prolonged deal duration is costly and postpones realising synergy gains.
Although much has been written about M&A performance and wealth effects, we know very little about the ‘pre-completion stage’ of an M&A deal – in particular, about aspects such as the likelihood of deal closing and time to completion.
Vlerick Professors Mathieu Luypaert and Wouter De Maeseneire have published a study that contributes to our understanding of the drivers of M&A deal completion time.
The authors researched the antecedents of deal duration for a sample of 1150 M&As between listed US companies during 1994–2011. Their findings enrich our understanding of the complicated M&A negotiation process during the pre-completion stage and shed additional light on prospective deal breakers of announced transactions.
Key findings for practitioners
- Not surprisingly, deal complexity hugely impacts deal duration. Stock offers, mergers, hostile bids and larger deals have massively longer completion times than simpler, more straightforward M&As.
- Second, strong and clear shareholder support accelerates the deal completion process. Additionally, deals in which acquirers are more likely to overpay – proxied by the cumulative abnormal return for target shareholders over a [−35, +5] window and the bidder’s cash and market-to-book ratio – are also completed more quickly.
- Finally, experienced bidders succeed in completing their transactions more rapidly – which implies organisational learning.
Source: ‘Antecedents of time to completion in mergers and acquisitions’ by Mathieu Luypaert and Wouter De Maeseneire. Published in Applied Economics Letters, 2014.