The winner's curse in acquisitions of privately-held firms

The winner's curse is often associated with acquisitions of publicly-traded firms but not with private acquisitions. Using an event study methodology for over 22,000 private acquisitions of U.S. firms between 1985 and 2015, we examine a possible winner's curse for such acquisitions. While the average return to private acquisitions is slightly positive, fully 46% of acquirers experience statistically significant negative abnormal announcement returns, strongly suggesting a winner's curse. We also find that acquirer competition, informational asymmetries, and overconfidence all reduce announcement returns, which is consistent with the winner's curse. In addition, we carry out a comparative analysis of acquisitions of publicly-traded targets and find a statistically significant negative average return, as is consistent with much previous work. We find that 54% of acquirers of publicly-traded firms obtain statistically significant negative returns, suggesting a stronger winner's curse for public than for private acquisitions.