If a large company acquires a smaller target company, in what situation would the P/E of the smaller target company be lower than the acquiror?

There are several reasons why the P/E ratio of the target company may be lower than that of the acquirer:

Liquidity: The smaller target company may be less liquid than the larger acquiring company and have significantly less trading volume, making it harder to buy and sell the stock.

Small Company Risk: As companies get larger, they become more established and have a lower risk of going out of business during temporary downturns. Smaller companies are less able to absorb business downturns and are less safe and secure. As a result, investors may pay more per dollar of earnings for a larger company because they value this increased safety.

Differences in Growth Rates or Financial Performance: The target company may be experiencing slower growth than the acquirer, resulting in a lower P/E ratio. It may also operate in a less attractive industry, and / or have lower earnings or profit margins.