How does acquisition experience create value? Evidence from a regulatory change affecting the information environment

We argue that acquisition experience translates more readily into learning to select than into learning to restructure. The acquisition selection stage is less causally ambiguous than the subsequent restructuring stage—because its web of activities is less complex and its outcome less delayed—and causal ambiguity undermines learning from experience. Therefore, we hypothesize that more-experienced acquirers will perform particularly well when the information environment is less transparent and thus the ability to select targets (versus to restructure them) is more important. Relying on a unique database of 1388 acquisitions realized by private equity firms in the United States between 1975 and 2005, and exploiting a regulatory change affecting the information environment faced by acquirers when selecting their targets, we find results largely consistent with our theory.