Product market conditions and motivations for acquiring public versus private targets

We examine different motivations and outcomes when firms acquire public versus private targets. Our analysis shows that higher (lower) competitive pressures and threats in product markets are associated with higher likelihood of acquiring public (private) targets. After taking over public targets, firms significantly increase their market share, differentiate products from close peers, gain cost savings, decrease net working capital, and maintain their operating income. Conversely, acquirers of private targets tend to increase their investment in fixed assets, capital and R&D expenditures, while also suffer a decrease in profitability. Our results suggest that acquirers of public targets pursue acquisitions that aim at consolidation of their position within their competitive product markets. Acquirers of private targets, in contrast, aim for innovation or expansion in less competitive product markets. Finally, we show that the 7-day acquirer announcement abnormal returns are significantly lower for public target acquirers with the highest competitive pressures and threats in their product markets. The differences in acquirer announcement returns indicate that market is able to sort out acquirers into those that operate in higher versus lower industry pressures.