Dependence of M&A Deal Multiple on Valuation Multiple of Acquirer

This paper investigates influence of acquirer valuation on deal premium and deal multiple for two samples of deals with public and private targets conducted in the US in 2010-2019. The findings suggest that acquirer P/BV and P/Value have positive and statistically significant influence on deal premium in a subsample of deals where acquirer stock serves as payment method implying that more highly valued acquirers are ready to pay higher deal premiums since they have access to relatively cheap stock financing and can pay higher price without destroying value for its shareholders. Among other factors influencing deal premium are acquirer value-generating ability and target growth opportunities consistent with prior studies (Jovanovic, B. and Rousseau, P., 2002; Davis and Madura, 2017). With respect to the sample of private targets, we find that, firstly, private targets receive on overage higher deal multiple than public targets since they have higher bargaining power due to their concentrated ownership and absence of less informed outside investors who might pressure company into selling during unfavorable times. Secondly, acquirer valuation has bigger influence on deal multiple of private targets than on deal multiple of public ones. This might be because acquirer valuation serves as a strong reference point for private targets during negotiations, while public targets have their own market multiples to refer to.