The selection of friendly take‐over targets in the UK: some empirical evidence

The vast majority of the acquisitions of UK‐quoted companies are friendly. This paper compares the accounting, financial and governance characteristics of firms that were acquired by friendly take‐over with those of firms that were not taken over. Evidence is found that targets exhibited superior performance in terms of the return on assets and the sales‐to‐assets ratio. However, they underperformed in terms of capital expenditure and the market‐to‐book ratio. No difference was found in the extent to which targets adopted the board structures recommended in the Code of Best Practice. The results therefore suggest that acquirers target firms that are relatively undervalued by the capital market but do not show signs of poor profitability or ineffective board structures.