If you're trying to acquire an existing company, look for one with a 65-year-old CEO, new research suggests.
The magical moment for mergers coincides with the traditional retirement age of 65, according to a study from researchers at Stanford and Dartmouth universities.
The research discovered that even a two-year age difference significantly affects the likelihood that a company will be acquired. Firms with a 65-year-old at the helm were almost 40 percent more likely to receive an acquisition offer than firms with a 63-year-old in charge. Companies with the older CEOs were also more likely to be acquired.
While many people intuitively think that the older guys must be doing something wrong, the results don't mean that the 65-year-olds are just selling out their companies, hoping to grab one last big bonus before they retire, said Dirk Jenter, one of the study's co-authors and an associate professor of finance at Stanford Graduate School of Business.
"We have no evidence whatsoever that the deals by 65-year-olds are bad deals," Jenter said in a statement. "Their deals look as good as the deals by the younger guys."
Jenter said the real question is why the younger executives aren't doing more deals like this. It's not that the retiring CEOs are too eager to sell, he said, but rather that younger CEOs, many of whom may have just reached the pinnacle of their careers, are too reluctant to do so — because they have too much to lose.
The study's authors believe investment bankers, who often initiate such deals, also play a role in the process. Jenter said the aspiring dealmakers consciously look for companies with CEOs at retirement age, because those CEOs have less to lose and will put up less of a fight.
"I've discussed this with investment bankers, and they say it's obvious to think about retirement incentives," Jenter said. "They look at a younger CEO, and say that would be a messy takeover fight."
Researchers believe the study's results have fascinating implications, specifically for "golden parachutes," the huge bonuses that go to executives in the event that they lose their jobs because of a merger.
While golden parachutes often receive criticism, their purpose is to offset a chief executive's natural inclination to oppose any takeover bid, even if it benefits shareholders, because it threatens his or her job.
Looking at the age-65 effect, though, Jenter said that golden parachutes should be bigger for younger CEOs and shrink as they age. He said a CEO who is already likely to retire won't have as much to fear from a takeover and won't need as big a counter-incentive.
The study was co-authored by Katharina Lewellen of Dartmouth's Tuck School of Business
Originally published on Business News Daily