Corporate Acquisitions During Recessions: A Unique Opportunity or a Risky Strategy?

Abstract

This thesis investigates whether recessions present strategic opportunities for acquiring firms, particularly examining the motivations, patterns, and shareholder returns associated with acquisitions conducted during recessionary periods. The study specifically explores if economic downturns allow acquiring companies to achieve higher abnormal returns by strategically capitalizing on lower share prices and reduced competition. The analysis utilizes cumulative average abnormal returns (CAAR) to measure market reactions to acquisition announcements across Western European publicly traded companies between 1999 and 2024. The dataset comprises 47,309 acquisitions, of which 26,073 are included in the CAAR analysis. Statistical analyses assess differences in acquisition activities and shareholder returns during recession versus non-recession periods. Results indicate distinct patterns of acquisition behavior in recessions, characterized by specific company and transaction features such as higher liquidity levels and strategic financial structuring. The findings confirm that acquisitions conducted during recessions typically yield higher abnormal returns compared to those in non-recession periods, suggesting that recessions indeed offer strategic investment opportunities. However, these opportunities predominantly benefit companies possessing particular characteristics, primarily financial strength, operational discipline, and previous acquisition experience.