Revisiting prediction takeover target on mergers and acquisitions

Abstract

This paper empirically examined the financial characteristics of acquired and non-acquired firms using the UK data set from 1st January 2014 to 31st December 2022 to verify whether there is considerable dissimilarity between these firms. Binary logit estimation predicts the probability that a firm will be acquired. The theory behind this model is that there can only be two possible outcomes for the event under consideration. A novel finding is that acquired firms have lower profitability than non-acquired firms and therefore serve as a basis for a takeover. It indicates that lower profitability acquired firms are more likely to be taken over, which is consistent with an efficient market for corporate control, where poorly performing companies are taken over and restructured. Findings show that acquired firms have higher financial leverage and lower liquidity than non-acquired firms’ complements. Finally, the non-acquired firm replaces inefficient management and removes inefficiencies in the acquired firm because the acquired firm cannot create value for its shareholders, compared to a non-acquired firm that makes value-enhancing acquisitions.