Identifying the Nature and Value of Expected Merger Synergies

Abstract

Using a large sample of post-2001 mergers, we show that three components of targets’ intellectual property account for 25% to 33% of merger value creation. In particular, we show that R&D, Technology, and Trademarks generate greater synergies than acquired net tangible assets and goodwill. We also find that acquiring targets’ customer bases is associated with lower synergies and that acquirers overpay for goodwill. Our findings are robust to using conventional and novel wealth effect estimates. They suggest that information about the economic value of acquired assets drawn from price allocation disclosures enables researchers to simultaneously study multiple sources of synergy.