The Effect on Shareholder’s Wealth Due to Focused versus Diversified Acquisitions in the Restaurant Industry

Mergers and acquisitions are frequent occurrences in the world of business. While a merged firm may convert an acquired asset to other brands, the restaurant industry tends to acquire the same brand name and does not change the name of the acquired assets. Acquisitions can prove to be a risky proposition in any industry. This study attempts to determine if a product-diversified acquisition in the restaurant industry is a value-creating decision. By comparing focused and diversified acquisitions, we try to find if focused acquisitions create value and that diversified acquisitions do not. Our initial expectation was that focused acquisitions create more shareholder value. We find that both focused and diversified acquisitions make significant positive abnormal returns for acquirers.