The Success of Acquisitions: Evidence from Divestitures

TLDR

The study analyzes a sample of large acquisitions completed between 1971 and 1982. By 1989, 44% of target firms were divested, with 34–50% of those divestitures deemed unsuccessful; unsuccessful divestitures had lower acquirer and total returns at announcement, and diversifying acquisitions were more likely to be divested but were not less successful than related acquisitions.

Abstract

ABSTRACT This paper studies a sample of large acquisitions completed between 1971 and 1982. By the end of 1989, acquirers have divested almost 44% of the target companies. We characterize the ex post success of the divested acquisitions and consider 34% to 50% of classified divestitures as unsuccessful. Acquirer returns and total (acquirer and target) returns at the acquisition announcement are significantly lower for unsuccessful divestitures than for successful divestitures and acquisitions not divested. Although diversifying acquisitions are almost four times more likely to be divested than related acquisitions, we do not find strong evidence that diversifying acquisitions are less successful than related ones.