Two-Side Merger and Acquisition Matching: A Perspective Based on Mutual Performance Evaluation Considering the Herd Behavior

A good merger and acquisition (M&A) cannot be achieved without a good matching that not only ensures high satisfaction for both bidders and targets but also operates as a two-sided process based on their mutual evaluations. Previous studies mostly focus on estimating the potential gains, and even those addressing M&A matching or the selection of merger targets and partners overlook the herd behavior of decision makers in the mutual evaluation. Nevertheless, decision makers often adjust their opinions by consulting others’ opinions, especially those they trust, and behave bounded rationality. Based on these, we propose a new approach for the two-side M&A matching from a perspective based on the mutual performance evaluation considering herd behavior. First, based on the concept of the cross efficiency in data envelopment analysis field, we propose a mutual evaluation method considering herd behavior of bidders and targets. Then, we measure the bidders’ and targets’ satisfaction with each other based on the prospect theory. Next, to seek the optimal M&A matching strategy, we build a two-side matching model with two objective functions that maximize the bidders’ and targets’ satisfaction with each other simultaneously. Finally, we use the data of 51 banks to illustrate our method.