Navigating the M&A Landscape: Financial Sponsor Backing, Innovation, and Legal Disputes

Mergers and acquisitions (M&As) are one of the major ways through which corporate assets change owners. This reallocation mechanism represents an important instrument to ensure the efficient use of assets and the associated post-merger integration process often implies drastic changes not only for employees, customers and suppliers, but also for competitors and the overall industry structure. The potential gains or losses can be material in size for the involved parties, and as such considerable research has been devoted to advance our understanding of transactions. Nevertheless, research gaps remain, for example with respect to the impact of major corporate events such as initial public offerings (IPOs) or security class action lawsuits (SCAs) on M&A transactions as well as regarding the implications of acquisitions for the competitive dynamics within a given industry. This dissertation consists of three distinct studies aiming to contribute to existing research gaps in the field of M&As. The first study examines the role of financial sponsors—i.e., private equity (PE) and venture capital (VC) investors—in the context of the acquisition activity of their portfolio firms once these firms went public. In particular, it focuses on the question whether financial sponsors promote or moderate the acquisition activity of their portfolio company after going public, a research question previously unaddressed. My findings suggest that PE-backed newly public firms engage in almost three times as many acquisitions as VC-backed newly public firms and that they achieve superior long-run post-IPO stock returns when doing so. The second study investigates the impact of corporate innovation on M&As. Specifically, the study seeks to understand the competitive dynamics that are at play when large technology conglomerates acquire innovative assets and the ramifications these acquisitions have for rival firms within the same industry. It shows that innovative acquirers are able to outbid non-innovative acquirers for innovative target firms and that innovative acquirer rivals react to these transactions by increasing both their R&D spending and their likelihood to acquire a technology target firm in the years after the competitor's M&A announcement. The third study explores M&A transactions in the context of security class action lawsuits (SCAs). Particularly, it analyzes to what extent bidders are able to capitalize on acquiring target firms that are subject to ongoing litigation. The study provides evidence that SCAs significantly reduce takeover premiums, but acquirers who purchase SCA-affected targets nevertheless experience significantly more negative announcement returns than acquirers of non-SCA affected ones. In the long-run, however, acquirers of SCA-affected targets are able to recoup some of their losses, particularly if the SCA is later dismissed.