4. Incentives for Other Participants

In many acquisitions the key decision-makers are the managers of the bidder and the shareholders of the target. The issue is: can the former persuade the latter to part with their shares in the target? Other parties who have an indirect role include non-executive directors of the bidder, and fund managers, who represent many shareholders in the target. The non-executives work part-time and the majority hold directorships in more than one company. For big UK companies their average annual pay is around £100,000 for each directorship. Is it surprising that they are reluctant to ‘rock the boat’ by challenging the top executives over their prized acquisition strategies? Will executives of other businesses be eager to welcome such disruptive challengers for their own boards? On the seller’s side, fund managers are often rewarded according to the (short-term) performance of the funds they manage. Bidders typically offer a premium to the shareholders of the target, commonly 25-30% over and above the price prevailing ahead of the bid. Fund managers understandably find it difficult to reject such offers when that would mean missing out on the bonus an acceptance would trigger.