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Eurasian Business Review

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04-10-2019 | Regular Article

Merger waves: are buyers following the herd or responding to structural queues?

Author: Ralph Sonenshine

Published in: Eurasian Business Review | Issue 2/2020

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Abstract

While there has been a significant amount of research covering the causes of merger waves, few papers have rank ordered merger waves based on the causes nor sought to determine which rationale leads to higher bidder payouts. This paper seeks to fill this gap by examining a cross section of large, global mergers across most industries occurring over a 17 year period. I find that merger waves over this period are caused foremost by changing economic and regulatory conditions. It is the behavioral rationale of mispricing, however, that more often leads to higher bidder payouts or merger premiums among acquirers in merger waves.

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Thomson Reuther industry groups were generally aligned with the Bureau of Economic Analysis industry groups, which follows the three-digit NAICs codes.

The industries are grouped into industry categories in the Appendix to help visualize the industries. These industry categories are not used in the regression analysis.

Health care was added to Ovtchinnikov’s (2013) list of regulated industries.

I examined the average 1-month deal premium for in-wave and out-of-wave mergers in regulated industries but did not find a difference. Similarly, I did not find a difference between 1-month deal premiums for in-wave and out-of-wave mergers in non-regulated industries.

There are only 4,398 observations for the IRR and IRW indexes because data was not available for all industries covered in this study.

I could not include the target’s Tobin’s Q due to collinearity with the difference in Tobin’s Q.

The last sector was dropped in the regression to avoid perfect collinearity.

The regression was also run using the IRW index logged. The results from this regression were virtually identical to those shown in Table 7.

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Title: Merger waves: are buyers following the herd or responding to structural queues?
Author: Ralph Sonenshine
Publication date: 04-10-2019
Publisher: Springer International Publishing
Published in: Eurasian Business Review / Issue 2/2020
Print ISSN: 1309-4297
Electronic ISSN: 2147-4281
DOI: https://doi.org/10.1007/s40821-019-00136-7

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