Does M&a Add Value?
DOES M&A ACTIVITY ADD VALUE? A LITERATURE REVIEW AND CASE STUDY Abstract
In this paper we explore the motivations for corporate acquisitions and critically evaluate whether acquisitions add to shareholder wealth – both from an acquirer and target perspective. We find that the time period over which shareholder wealth is measured, the payment form and the nature of the bid all have an effect on the findings. A case study of the ABN AMRO acquisition by RBS is examined to validate the findings from the literature review. Introduction
The aim of this paper is to analyse whether or not M&A (Merger & Acquisition) activity generates shareholder wealth. The paper will also focus on a case study of M&A activity within the financial sector. The starting point is to define the term ‘shareholder wealth’. Shareholder wealth is the wealth created for shareholders either through increases in the value of the shares that they hold or through the payment of dividends, or both. In finance theory, wealth maximisation is the main goal of the managers of a firm. This is when the present value of the expected cash flows from a project exceeds the initial outlay on the project. From the view point of an acquirer, the equivalent logic is that shareholder wealth is maximised when the value added as a result of the acquisition of the target exceeds the cost of that acquisition. Therefore, the aim of this paper is to critically analyse and evaluate whether shareholder wealth is created as a result of the merger and acquisitions process. Central to this discussion will be the following: Effect of M&A on target shareholder wealth Effect of M&A on acquirer shareholder wealth Time period over which changes in shareholder wealth occur (short term versus long term), and how they are measured Do different payment forms (shares, cash or a combination) result in statistically different returns to target and acquirer shareholders? Differences in returns to shareholder wealth based on whether the
In this paper we explore the motivations for corporate acquisitions and critically evaluate whether acquisitions add to shareholder wealth – both from an acquirer and target perspective. We find that the time period over which shareholder wealth is measured, the payment form and the nature of the bid all have an effect on the findings. A case study of the ABN AMRO acquisition by RBS is examined to validate the findings from the literature review. Introduction
The aim of this paper is to analyse whether or not M&A (Merger & Acquisition) activity generates shareholder wealth. The paper will also focus on a case study of M&A activity within the financial sector. The starting point is to define the term ‘shareholder wealth’. Shareholder wealth is the wealth created for shareholders either through increases in the value of the shares that they hold or through the payment of dividends, or both. In finance theory, wealth maximisation is the main goal of the managers of a firm. This is when the present value of the expected cash flows from a project exceeds the initial outlay on the project. From the view point of an acquirer, the equivalent logic is that shareholder wealth is maximised when the value added as a result of the acquisition of the target exceeds the cost of that acquisition. Therefore, the aim of this paper is to critically analyse and evaluate whether shareholder wealth is created as a result of the merger and acquisitions process. Central to this discussion will be the following: Effect of M&A on target shareholder wealth Effect of M&A on acquirer shareholder wealth Time period over which changes in shareholder wealth occur (short term versus long term), and how they are measured Do different payment forms (shares, cash or a combination) result in statistically different returns to target and acquirer shareholders? Differences in returns to shareholder wealth based on whether the
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