The Choice of Payment Method in M&A and Its Impact on Bidder Stock Return: Evidence from the US Technology Industry

The aim of this paper is to explore in detail the differences between acquisitions of technological companies and of companies from other industries in terms of deal financing structure and abnormal returns around the deal announcement. The econometric models were fitted on the sample consisting of 324 deals involving tech targets and 285 deals involving non-tech targets, and the results were compared for the two subsamples using a full set of dummy variables. The main findings of this study reveal several major differences between tech and non-tech deals. First, the relative size of the target is more important in determining the deal financing structure in acquisitions of tech targets. Second, the financial constraints faced by acquirer including debt capacity and availability of cash are less critical in tech deals. Third, the misvaluation of acquirer’s stock by the market does not significantly affect the choice of payment method in tech deals, while does significantly affect it in deals in other industries. Finally, the acquisitions of tech companies are associated with higher abnormal returns of acquirer’s stock around the announcement, irrespective of the payment method, and this effect is proportional to the relative size of the target company.