What Is an Upstairs Deal
An upstairs deal is a business agreement or decision that is made by senior management, and is generally unknown to lower-level employees until it is publicly announced. It's referred to as an "upstairs deal" because C-suite executives typically have their offices in the higher floors of an office building.
Upstairs deals can involve any arrangement that has an impact on the operations of the company. But they are often associated with mergers and acquisitions.
BREAKING DOWN Upstairs Deal
An upstairs deal generally happens behind closed doors, whether they're literally the doors to a boardroom or the CEO's office.
Why the secrecy? It eliminates the possibility of information leaks and expedites decision-making. An upstairs deal between two companies is more likely to result in a friendly takeover, as opposed to a hostile takeover. That way if the deal falls through, bad publicity can more likely be avoided.
Keeping word of a potential merger quiet also allows executives to operate with a reduced risk of outside parties profiting from the deal by driving up stock prices in advance. Once an offer is extended or a deal is announced, the targeted company's shares will react by either moving up or down to the indicated target price.
For example, say a corporation tenders an offer of $15 per share for a competitor, whose stock is currently trading at $10 per share. When the offer is announced, it will likely result in those shares jumping to $15 – with the result being that the acquiring corporation would then be forced to up its offer.