Optimal acquisition strategies in unknown territories

We investigate the optimal acquisition strategy of an investor who wants to acquire a target firm under incomplete information. The response to acquisition offers signals firm productivity, affecting future competition. We identify a competition effect (firms compete for acquisition) and a revelation effect (firms signal productivity). These effects reduce the rejection profits and increase the acceptance probability. If the investor makes simultaneous offers, the revelation effect is a potential threat: a firm may signal low productivity, but may not be acquired. If, however, the investor makes offers sequentially, this threat does not exist, making sequential offers the optimal acquisition strategy.Onur A. Koska and Frank Stähle