Companies that "sell to buy" reap a $234 million shareholder boost, study finds

Companies that sell parts of their business to raise cash for acquisitions make better deals and win greater shareholder approval, according to new research from the University of Surrey.  

The study, published in The Journal of Financial Research, finds that when firms sell major assets before making an acquisition, they are far more likely to pay in cash – and their shareholders reward them for it. Investors react significantly more positively when the cash used for takeovers comes from asset sales rather than internal funds, borrowing or issuing new shares. 

In a study of over 21,000 US acquisitions between 1990 and 2019, the researchers found that companies that sold large assets were 26% more likely to make all-cash acquisitions than firms that did not. These firms also experienced stronger market reactions around deal announcements – the equivalent of a $234 million boost in shareholder value for the average-sized seller. 

Why do investors favour this approach?  Cash raised through selling existing assets is viewed as a clean, transparent and disciplined source of finance. By contrast, funding deals through debt or equity is often linked to higher risk, hidden costs and poor decision-making. Therefore, when a company funds a purchase with proceeds from selling assets, it’s seen as a strategic reallocation of resources – a move that appears to reassure the market and rive a more positive response.  

Dr Christos Mavrovitis, co-author of the study and Senior Lecturer in Finance and Accounting at the University of Surrey, said: 

“How you pay for an acquisition can be just as important as the deal itself. When firms sell assets to raise cash for acquisitions, the market sees that as a positive signal. It suggests management is being strategic, recycling underperforming parts of the business to fund better opportunities. Investors reward that kind of discipline.” 

The research also highlights how markets interpret the motivation behind the “selling-to-buy" strategy. Selling assets before a major acquisition can be seen as careful preparation rather than distress or downsizing. Investors appear to view it as evidence of prudent financial management and confidence in value creation. 

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• For media enquiries and interview enquiries, please contact: mediarelations@surrey.ac.uk 

• The full study has been published in The Journal of Financial Research