Optimal Acquisition Strategies in Unknown Territories

We investigate the optimal acquisition strategy of an investor who wants to acquire a target firm under incomplete information. The response to acquisition offers signals firm productivity, affecting future competition. We identify a competition effect (firms compete for acquisition) and a revelation effect (firms signal productivity). These effects reduce the rejection profits and increase the acceptance probability. If the investor makes simultaneous offers, the revelation effect is a potential threat: a firm may signal low productivity, but may not be acquired. If, however, the investor makes offers sequentially, this threat does not exist, making sequential offers the optimal acquisition strategy.