The negative effects of mergers and acquisitions on the value of rivals

Revaluations of industry peers around horizontal acquisitions are negative when targets are private, but positive when they are public. We posit this “revaluation spread” arises because acquiring managers favor private targets when public firms are overvalued. Targets' ownership status thus conveys information about industry assets' misvaluation, and triggers predictable revaluations. Supporting this idea, the “revaluation spread” is larger when peers' valuations deviate more from fundamentals, varies with overall market misvaluation, predicts future industry returns, and is unrelated to peers' and industries' fundamentals. Our findings suggest an active market for real assets fosters the ability of stock prices to reflect fundamentals