The acquisition of privately held firms is a prevalent
phenomenon that has received little attention in mergers
and acquisitions research. In this study, we examine
three questions: (1) What drives the acquirer’s choice
between public and private targets? (2) Do acquisitions
of private targets elicit a more positive stock market
reaction than acquisitions of public targets, which, on
average, destroy value for acquirers’ shareholders? (3)
Do acquirers gain when their selection of a public or
private target fits the theory? In this paper, we argue
that the lack of information on private targets limits
the breadth of the acquirer’s search and increases its
risk of not evaluating properly the assets of private
targets. At the same time, less information on private
targets creates more value-creating opportunities for
exploiting private information, whereas the market of
corporate control for public targets already serves as
an information-processing and asset valuation mechanism
for all potential bidders. pdf
