Stealth by Design: Strategic Stealth Acquisition Behavior in U.S. M&A Activity

This thesis studies how U.S. firms structure mergers and acquisitions to avoid antitrust review. Many deals cluster just below the Hart-Scott-Rodino threshold, showing evidence of “stealth acquisitions.” Private equity often appears in these deals, but cash financing is the main driver. Once cash is considered, the independent effect of private equity weakens. These results suggest that cash broadly enables stealth acquisitions and that policymakers may need to rethink relying solely on deal size for antitrust review.

Why Study Stealth Acquisitions?

Mergers and acquisitions (M&A) are a central force in shaping modern markets. In the United States, large transactions are subject to pre-merger review under the Hart-Scott-Rodino (HSR) Act, which requires companies to notify regulators if the deal value exceeds a threshold ($111.4 million in 2023). This notification allows the Federal Trade Commission (FTC) and the Department of Justice (DOJ) to assess competitive risks before the deal is completed.

But what about deals that fall just below this threshold? Recent evidence suggests that many firms deliberately structure transactions to remain under the radar, avoiding antitrust scrutiny. These so-called “stealth acquisitions” are not necessarily small in economic terms. A series of $100–110 million deals, for example, could cumulatively reshape an industry, yet each deal would evade review.

This master’s thesis set out to examine whether private equity (PE) firms, known for their consolidation strategies, are especially prone to such stealth behavior, and whether their heavy reliance on all-cash financing makes it easier to avoid regulatory oversight.

This question matters for both scholars and policymakers. For scholars, it contributes to the growing literature on disclosure avoidance and regulatory arbitrage in M&A. For policymakers, it raises the question of whether the current HSR thresholds may leave regulators blind to economically significant activity, particularly in industries prone to serial consolidation.

A Two-Decade Look at U.S. M&A Data

To study this question, a dataset of nearly 10,000 U.S. M&A transactions announced or completed between 2004 and 2023 was used. The data comes from Moody’s Orbis M&A database and covers both public and private deals.

The focus was on transactions close to the HSR reporting threshold, since bunching just below the cutoff is the telltale sign of stealth acquisition behavior. Deals were classified according to:

• Acquirer type: whether the buyer was a PE firm (or majority-owned by one) or not
• Payment method: whether the deal was financed entirely in cash or with other methods (stock or mixed)
• Deal value: the disclosed price paid by the acquiring company to purchase the target

Roughly 8% involved PE acquirers, and about 60% were all-cash deals

Method for Detecting Stealth Behavior

Under normal circumstances, deal values should form a smooth distribution. There is no reason to expect a sudden jump in the number of transactions at, say, $109 million compared to $112 million. When observing such a spike just below the HSR reporting threshold, it strongly suggests that deals are being deliberately structured to avoid filing.

Detection involved a combination of statistical tests, visual inspection, and falsification checks. Results were then compared by acquirer type (PE vs. non-PE) and payment method (all-cash vs. other), enabling the evaluation of three hypotheses:

• H1: M&A deals exhibit bunching just below the HSR threshold.
• H2: PE acquirers are more prone to this behavior than others.
• H3: All-cash financing is associated with stealth acquisitions and may explain part of the PE effect.

The Findings

Confirming Prior Research and Extending It

This analysis builds directly on the work of Kepler, Naiker and Stewart (2023), who first documented evidence of “stealth acquisitions” in U.S. M&A by showing that deals tend to cluster just below the HSR reporting threshold. A proprietary dataset comprising nearly 10,000 transactions from 2004 to 2023 was used to replicate and confirm earlier findings, revealing a statistically significant spike in deals just below the filing cutoff.

The analysis was further extended to assess whether this behavior is particularly pronounced among private equity acquirers and whether it is facilitated by all-cash financing—two dimensions that have not been systematically analyzed in prior research.

1. Evidence of Stealth Acquisitions

Across the full sample, a pronounced spike in deal values was identified just below the HSR threshold. Statistical tests confirmed this was unlikely to be random.

2. Private Equity and Stealth

When focusing only on deals backed by private equity, the pattern of bunching becomes more pronounced. PE transactions are significantly more likely than expected to fall just below the reporting threshold. Statistical models confirm this: the closer a deal is to the cutoff, the higher the odds that it involves a PE buyer. This finding is consistent with the idea that private equity firms may deliberately position their acquisitions just under the HSR line.

3. The Role of All-Cash Financing

The method of payment also proved to be central. A striking 78% of PE acquisitions were all-cash, compared with 59% of non-PE deals. Across the sample, all-cash transactions were more than twice as likely to fall just below the HSR threshold, even after accounting for deal size, industry, and year. The association becomes stronger the closer the deal value is to the cutoff.

Cash appears to matter because, unlike stock-financed deals, cash transactions do not require SEC filings, shareholder approval, or disclosures linked to issuing new shares. They can therefore be completed faster and with less visibility - qualities that make them particularly well-suited to staying below the radar.

4. Linking PE and Cash

It was also important to understand whether private equity’s preference for cash is the reason they seem more involved in stealth acquisitions. To test this,  a statistical method was used that allows to separate direct from indirect effects.

The results suggest that part of the link between PE and stealth acquisitions runs through their use of cash. In other words, because PE firms almost always pay in cash, some of their tendency to end up just below the reporting threshold can be explained that way.

At the same time, the overall effect of being a PE buyer was not statistically significant once cash was taken into account, and our estimate of how much of the effect was explained by cash was too imprecise to draw strong conclusions.

Finally, when testing whether cash had a stronger effect for PE firms than for others, no evidence of that could be found. Cash seems to make stealth behavior more likely across the board, not just for PE.

Why It Matters

From this analysis, a few key messages stand out:

• Stealth acquisitions do happen in U.S. M&A. We see clear signs that deals are deliberately structured to stay just below the reporting threshold.
• Private equity plays a visible role. PE firms are more often present among these just-below-threshold deals.
• Cash matters a lot. Using all-cash financing makes it more likely that a deal ends up just under the line. This helps explain some - but not all - of the effect we see for PE.
• How deals are structured matters, not just their size. The way a transaction is financed can influence whether it gets reviewed. This raises the possibility that the current rules, which focus mainly on deal value, may overlook economically important activity.

Final Takeaways

This study provides new evidence that stealth acquisitions are a real feature of U.S. M&A. It also confirms earlier research showing that deals bunch just below the HSR threshold, while showing that both private equity buyers and all-cash financing are central to this pattern.

At the same time, the results are nuanced. The link between PE and stealth seems to run partly through their heavy use of cash. But the overall effect of being a PE buyer, on its own, was not statistically significant once cash was taken into account, and the estimate of how much of the effect is explained by cash was too imprecise to draw firm conclusions. Furthermore the study found no evidence that cash works differently for PE than for other acquirers.

Taken together, these findings suggest that cash is a general enabler of stealth acquisitions. Private equity does play a role, but mainly because of its reliance on cash financing rather than through unique tactics of its own.

Short Bibliography

Kaplan, S. N., & Strömberg, P. (2009). Leveraged buyouts and private equity. Journal of Economic Perspectives, 23(1), 121–146. https://www.hhs.se/contentassets/662e98040ed14d6c93b1119e5a9796a4/kaplanstrombergjep2009.pdf

Kepler, J. D., Naiker, V., & Stewart, C. R. (2023). Stealth acquisitions and product market competition. The Journal of Finance, 78(5), 2837–2900. https://onlinelibrary-wiley-com.kuleuven.ebronnen.be/doi/full/10.1111/jofi.13256

McCrary, J. (2008). Manipulation of the running variable in the regression discontinuity design: A density test. Journal of Econometrics, 142(2), 698–714. Retrieved from https://www-sciencedirectcom.kuleuven.ebronnen.be/science/article/pii/S0304407607001133?via%3Dihub

Offenberg, D., & Pirinsky, C. (2015). How do acquirers choose between mergers and tender offers? Financial Management, 44(4), 855–885. https://www-sciencedirect-com.kuleuven.ebronnen.be/science/article/pii/S0304405X15000227

Wollmann, T. G. (2019). Stealth consolidation: Evidence from an amendment to the Hart–Scott–Rodino Act. American Economic Review: Insights, 1(1), 77–94. https://pubs.aeaweb.org/doi/pdfplus/10.1257/aeri.20180137