We study the role of litigation risk in M&A valuations. Specifically, we hypothesize that litigation risk leads to strategic valuations in fairness opinions (FOs) obtained in M&A transactions. Employing a regulatory shock to merger litigation risk and focusing on the most common valuation techniques – peer firm comparables and DCF analysis – we find that target-sought FOs exhibit lower valuations when litigation risk is high. The effect is concentrated in deals with greater agency conflicts between target management and outside shareholders. Furthermore, downward-biased valuations reduce appraisal litigation but are also associated with lower premiums. In contrast to prior work suggesting that target-sought FOs are used to negotiate a higher takeover price, our findings imply that they are used, at least in part, to mitigate litigation risk and facilitate successful deal completion. Our findings are relevant to academics, practitioners, and regulators interested in M&A price formation, and highlight the role litigation plays therein.

中文翻译：

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诉讼风险和战略并购估值


我们研究诉讼风险在并购估值中的作用。具体来说，我们假设诉讼风险会导致并购交易中获得的公平意见（FO）的战略估值。通过对并购诉讼风险进行监管冲击，并关注最常见的估值技术——同行公司可比性和贴现现金流分析——我们发现，当诉讼风险较高时，目标家族企业的估值较低。其影响集中在目标公司管理层与外部股东之间存在较大代理冲突的交易中。此外，向下偏向的估值减少了评估诉讼，但也与较低的保费相关。之前的研究表明，目标寻求的 FO 用于谈判更高的收购价格，而我们的研究结果表明，它们至少在一定程度上用于减轻诉讼风险并促进交易的成功完成。我们的研究结果与对并购价格形成感兴趣的学者、从业者和监管机构相关，并强调了诉讼在其中发挥的作用。