In some cases that would definitely be correct - the issue of discounted stock to fund an M&A deal may immediately result in a weaker market price. But if the deal is perceived to be value creating, the discount should be small and the stock should be in demand when trading recommences. What the stats presented don't show is what happens to value creation over the longer term. I'm biased to what consultants AT Kearney wrote on the EPS accretion approach: "In the same way a Ponzi scheme must eventually fail due to the lack of underlying value creation, the P/E multiple of the acquiring company must fall as it becomes increasingly evident to the market that no value is created."
Thanks Mark!
I must say, I don't think either the Small Ordinaries or the Emerging Companies indices from S&P are great benchmarks for microcaps. Components of the Small Ords have an average market cap of $1.1 billion, with the largest up above $5 billion - and the weighting favouring the high end. The Emerging Companies index has an average market cap of $245m but a 25% weighting to resources means it is not aligned with many of the industrial-oriented funds and its trailing PE multiple is, according to S&P, -43 (yes minus 43), a figure that suggests to me a different stock composition from what you'd expect the type of funds listed above to be running with.
Hi Mark, Managerial Ownership, Board of Directors, Equity-based Compensation and Firm Performance: A Comparative Study Between France and the United States, by Bouras & Gallali