Deal size, acquisition premia and shareholder gains

This study examines the contradictory predictions regarding the association between the premium paid in acquisitions and deal size. We document a robust negative relation between offer premia and target size, indicating that acquirers tend to pay less for large firms, not more. We also find that the overpayment potential is lower in acquisitions of large targets. Yet, they still destroy more value for acquirers around deal announcements, implying that target size may proxy, among others, for the unobserved complexity inherent in large deals. We provide evidence in favor of this interpretation. ► We examine the association between M&A premia and deal size. ► Acquirers pay significantly lower premia for large targets. ► The overpayment potential is lower in acquisitions of large target firms. ► Acquirers still destroy considerably more value in large deals than in small ones. ► Results can largely be explained by the unobserved complexity inherent in large deals.