How Markets React to Different Types of Mergers

This paper analyzes the merger data for the period of 1994-2011 for the US companies and identifies the characteristics driving M&A performance. We analyze two-day abnormal returns for M&A announcements by public acquiring firms to test whether the market reacts differently to the type of target firms, the fundamentals of the target, and the target firm’s industry. The key contribution of our study is that we examine whether the market has a preference for delisted firms acquired in the M&A activity. Although the number of ‘Delisted and Acquired’ firms is small during the period analyzed, we find that the market reaction to M&A of non-delisted public target firms is more negative than that of the delisted public target firms. More generally, we also find that acquisitions of private firms induce a positive reaction for the acquirer, in contrast with acquisitions of public firms. Further, the characteristics of the target and acquirer firms, such as firm performance, do not play a huge role in market reactions to a merger except for the delisted status of a firm.