Reacquisitions vs. “regular” acquisitions and divestitures: A comparison of investor responses

Studies on mergers and acquisitions (M&A), as well as on divestitures, suffer from heterogeneity within their research universe. This study sheds light on one specific type of transaction that, despite its relevance, has remained understudied: reacquisitions. Reacquisitions are a type of M&A in which previously divested company parts are reacquired by parent companies. Drawing on recent research on how investors assess M&A (e.g., Harrison & Schijven, 2016; Schijven & Hitt, 2012), as well as on the occurrence of reacquisitions (e.g., Gleason, Madura, & Pennathur, 2006), we focus on three empirical questions and show that most reacquisitions are likely to be associated with negative signals about potential synergy, as well as with information about problems or threats related to the reacquiring companies. Based on an event study of 71 reacquisitions and 71 divestitures followed by reacquisitions, and comparing them against “regular” M&A and divestitures, we find, inter alia, that investors assess reacquisitions significantly more negatively than regular M&A. Our findings support the view that investors’ assessments are based on incomplete information and do not necessarily reflect actual performance