The value of (stock) liquidity in the M&A market

We study the value of stock liquidity in the market for corporate control and show that the target firm’s liquidity has an impact on the transaction itself as well as on the resulting merged entity. We use a sample of US M&A transactions 1987 through 2007 to show that acquiring a more liquid firm makes the stock of the acquirer more liquid. This has consequences on M&A activity and pricing. Public acquirers are more likely than private acquirers to acquire more liquid targets. It also translates into a greater likelihood of completing the deal and higher compensation for the target.