Research Brief

Face-to-Face Meetings, Before an Acquisition, Improve Outcomes for Buyers

Acquiring companies appear to get a better deal following frequent in-person meetings

Corporate takeovers are notorious for disappointing the buyer’s shareholders, producing, at best, lower financial gains than forecast, and sometimes an ugly and embarrassing surprise, as seen in JPMorgan Chase’s $175 million purchase of Frank, a fintech company.

But location data from smartphones of actual corporate buyers’ employees suggests that an age-old strategy can improve those returns, research by Tilburg School of Economics and Management Marco Testoni and UCLA Anderson’s Mariko Sakakibara and M. Keith Chen finds.

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Suitors that hold frequent face-to-face meetings with target management prior to a merger announcement achieve higher returns when the news breaks, according to the study published in Strategic Management Journal. The old-fashioned face time is also associated with shorter times between the deal announcement and its closing, according to the results.

Targeted companies, on the other hand, see returns fall when the number of pre-deal encounters with the buyer’s team stacks up, according to the study. They also receive fewer competing bids after the merger announcement, according to the findings.

In-Person Meetings Bonus: Avoiding Costly Counteroffers

The study uses anonymized location data from smartphones to track employees who likely were involved in 234 major U.S. mergers between July 2016 and January 2018, including 97 deals with public companies as targets.

Although the researchers did not attempt to ID individuals, they deduced likely employers and employees by identifying where the phones stayed during most business hours. They then looked at the times workers from an acquiring company visited headquarters of their target, or target management visited their suitor’s headquarters, in the eight months before a merger announcement.

Returns to acquirers, measured by cumulative abnormal returns to shares in the days surrounding the deal announcement, generally rose with the number of pre-announcement meetings. In public company mergers, which typically are more lucrative for sellers than buyers, acquirers attained the higher returns when they had met personally with target management frequently.

Frequent in-person meetings appear to facilitate friendlier, less costly relationships for the acquirers by creating opportunities for social interactions between the parties, the authors suggest. Informal conversations, which are far less likely to occur during video conferencing, email exchanges and other remote communication, seem to build trust and dampen target management’s enthusiasm for attracting competing offers.

As a result, the study finds, buyers that visit frequently avoid costly counteroffers that likely would raise returns for target shareholders. As the number of intercompany visits rises, the number of days between merger announcement and closing progressively falls, and chief executives of the target companies are far more likely to join the buyer’s board of directors, according to the findings.

Notable Exceptions to Face-to-Face Effect

Management that has substantial ownership stakes in their firm appears less affected by these interactions, the study finds, even though they are no less likely to entertain numerous face-to-face meetings. In deals involving private companies, which often have very concentrated ownership, the researchers saw no correlation between returns and the number of in-person visits.

The findings were supported in additional analysis of 3,464 public company deals between 1980 and 2019. For example, relative returns to target companies were higher when there were no direct flights between the parties’ headquarters locations and where frequent snow storms disrupt travel, according to the study. Easier travel access to the target raised acquirer returns.

While previous research has relied on alliances, shared board members and geographic proximity to approximate social interactions between firms, this study applies smartphone data to acquisition strategy research.

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About the Research

Testoni, M., Sakakibara, M. and Chen, M.K. (2022). Face-to-Face Interactions and the Returns to Acquisitions: Evidence from Smartphone Geolocation Data. Strategic Management Journal, 43(13): 2669-2702.

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