M&A Negotiations: Role of Negotiation Process, Ownership and Advisors on Deal Completion

Mergers and acquisition deals are uncertain, with completion likelihood changing throughout the negotiation process. During negotiations, the firms process new information to modify their choices. This study aims to examine the dynamic nature of the M&A negotiation process. The study uses a sample of 983 worldwide unsolicited deals from 1999 to 2019 and classifies M&A deal outcomes using logistic regression, decision tree, and random forest classifiers. Ownership considerations and advisors are essential elements of the negotiation. Ownership sought has the potential to impact the deal's complexity and exercisable control. Prior ownership may either help gain information or recover due diligence costs. The advisors may assist the firms in the available information's financial and legal due diligence. Prior research lacks the negotiation period’s dynamism and gives mixed results for the impact of ownership and the role of advisors. We uniquely identify a non-linear inverted U-shaped relationship between the negotiation period and completion likelihood. The results prove that prior ownership, over the negotiation period, serves the dual objective of assisting deal completion and acting as a substitute for the termination fee. The acquirer and target advisors help with the completion of the deal. The varying effects for ownership and advisors over the negotiation process help explain the conflicting results in previous studies. The evolving negotiating circumstances play an important role in affecting the outcome. Our work shows the importance of temporal characteristics and the dynamic nature of decision-making during the M&A negotiation process and encourages further studies exploring processual theories.