Academic journal article Journal of Accountancy

Merger Pace Slows but Prices Stay High

Academic journal article Journal of Accountancy

Merger Pace Slows but Prices Stay High

Article excerpt

MERGER PACE SLOWS BUT PRICES STAY HIGH

Despite a slowdown in mergers and acquisitions in the first half of 1989, buyers are still willing to pay premium prices for their takeovers, according to a study by American Appraisal Associates.

"Premiums are being bolstered by buyers who are looking for strategic acquisitions," says Lee P. Hackett, senior vice-president of American Appraisal. "Buyers are willing to pay, and even fight for, acquisitions that will extend their product lines or geographic reach and boost their ability to compete."

Bidding wars characterized some 36% of the cash tender offers through June in which acquisitions were contested by other potential buyers. In an additional 12% of the transactions, the same bidder increased the offer at least once.

Foreign buyers accounted for 29% of the purchases, most of which had annual sales of over $1 billion. Leveraged buyouts accounted for only 10% of the acquisitions.

Reducing corporate overhead. Takeovers, according to a study by the National Bureau of Economic Research (NBER), reduce corporate overhead. When companies changed owners, the ratio of central-office employees to plant employees declined about 11%. …

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