A new study co-authored by Professor Raghavendra Rau of Cambridge Judge Business School addresses this puzzle by separating acquirers into four categories that can help predict future activity:
- “loners” that make just one or 2 acquisitions
- “occasional acquirers” that only acquire a few targets
- “sprinters” that make short-lived bursts of acquisitions
- “marathoners” that almost never stop acquiring
The study, published in the Review of Corporate Finance Studies, finds in effect that the market is likely to be using a simple before-the-fact classification such as this to predict which acquirer is going to acquire before they actually acquire. So an explanation for declining returns of many serial acquirers is that future acquisition market reactions are lower because expectations of future activity have already been incorporated into acquirer’s market value.
“The study moves beyond previous academic research that looked at serial acquirers as a homogenous class. It is difficult to believe that markets would treat Microsoft, for example, exactly as they would treat an acquirer who acquires only once,” says Professor Rau. “Our methodology shows that not all serial acquirers follow the same takeover patterns, and this ex ante information on acquirer types enables our model to predict acquisition activity far more accurately.”
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