Mergers and Acquisitions: Takeover Efficiency, Social Connection and Acquisition Performance

Abstract

This thesis develops a composite index to evaluate takeover efficiency and deal quality, and then examines the impact of social connection on takeover process and acquisition performance with U.S mergers and acquisitions (M&A).
Initially, Chapter 2 constructs a composite indicator (“M&A index”) to measure takeover efficiency and evaluate the overall deal quality based on stochastic frontier analysis. The M&A index is computed for each takeover transaction and standardised between 0 and 1. Deals with a higher M&A index imply higher takeover efficiency. The empirical results show that the M&A index is significantly and positively associated with the probability of deal completion and post-acquisition performance in the short run and even in the long run, indicating that the M&A index is effective and forward-looking indicator.
Then Chapter 3 examines social connections between bidders and targets and its impact on acquisition premium. Consequently, acquirers, who are closely connected with targets, pay significantly lower premium and tend to use stock as the method of payment. The findings indicate that social connection enhances information transfer and reduces information asymmetry between connected firms. Therefore, acquirers with social connections have better access to target information and enhanced bargaining power in negotiations.
Finally, Chapter 4 addresses the connection between acquirers and their M&A advisors. Investment banks are further classified into full-service advisors and boutique advisors. Consequently, it is found that acquirers are more likely to hire closely connected boutique advisors, especially domestic boutique advisors, in takeover deals while connections between bidding firms and full-service advisors reduces the probability of full-service banks being appointed. Moreover, boutique advisors, who have strong social linkage with bidders, serve the interests of bidders, negotiate lower acquisition premiums and deliver higher deal quality. In contrast, full-service banks act against the interests of the connected acquirers, leading to higher premiums paid and inferior long-run acquisition performance.