Post-Merger Performance of North American, European and Uk Acquirers
ERASMUS UNIVERSITY ROTTERDAM ERASMUS SCHOOL OF ECONOMICS MSc Economics & Business Master Specialisation Accounting and Finance
Post-Merger Performance of North American, European and UK acquirers
A study of synergy advantages: M&As during 1981-1999 in the Utilities, Manufacturing and Services industries
Author: EUR study number: Thesis supervisor: Finish date:
M.B. Gmelich 307381 Dr. W. de Maeseneire September 2011
ABSTRACT
This thesis empirically investigates the antecedents of abnormal return and operating performance improvement through mergers and acquisitions in Europe, the United Kingdom and North America. The study is an empirical study of M&As of listed acquirers and targets announced between 1985 and 1999. The transactions are analysed using event studies for abnormal return on the short and long terms (216 transactions) and operating performance (135 transactions). The event study for the shareholders’ wealth of acquiring firms report significant negative abnormal returns on the long run. This does not support M&A motives of acquiring firms. The M&As with a Europe-based target firm instead report significant positive abnormal returns for a three- and five-year event window. Nevertheless, the European targets within the sample are too small to make reliable conclusions. The post-merger operating performances of merged firms based on accounting variables are compared with industry developments. The results do not support the operating synergy argument for M&A activity or overall ROA improvement. However, a positive influence for financial synergy is found in lower capital expenses after two years. Furthermore, a cross sectional regression analysis is done for abnormal returns and operating performance improvement to detect influences of deal and firm characteristics. A positive relation for cross border mergers and a negative relation for targets in the Utilities industry are found in the results.
Keywords Synergy, Mergers &
Post-Merger Performance of North American, European and UK acquirers
A study of synergy advantages: M&As during 1981-1999 in the Utilities, Manufacturing and Services industries
Author: EUR study number: Thesis supervisor: Finish date:
M.B. Gmelich 307381 Dr. W. de Maeseneire September 2011
ABSTRACT
This thesis empirically investigates the antecedents of abnormal return and operating performance improvement through mergers and acquisitions in Europe, the United Kingdom and North America. The study is an empirical study of M&As of listed acquirers and targets announced between 1985 and 1999. The transactions are analysed using event studies for abnormal return on the short and long terms (216 transactions) and operating performance (135 transactions). The event study for the shareholders’ wealth of acquiring firms report significant negative abnormal returns on the long run. This does not support M&A motives of acquiring firms. The M&As with a Europe-based target firm instead report significant positive abnormal returns for a three- and five-year event window. Nevertheless, the European targets within the sample are too small to make reliable conclusions. The post-merger operating performances of merged firms based on accounting variables are compared with industry developments. The results do not support the operating synergy argument for M&A activity or overall ROA improvement. However, a positive influence for financial synergy is found in lower capital expenses after two years. Furthermore, a cross sectional regression analysis is done for abnormal returns and operating performance improvement to detect influences of deal and firm characteristics. A positive relation for cross border mergers and a negative relation for targets in the Utilities industry are found in the results.
Keywords Synergy, Mergers &
References: Asquith, P. and H. Kim, 1982, the impact of merger bids on participating firm 's security holders, Journal of Finance Vol. 37, pp. 1209-1228 Asquith P, 1983, Merger bids, uncertainty, and stockholder returns, Journal of Financial Economics 11, 51-83 Barber, B. and J. Lyon, 1996, Detecting abnormal operating performance: the empirical power an specification of test statistics, Journal of Financial Economics 41, 359-399 Bradley, M Brown, S.J. and J.B. Warner, 1980, Measuring security price performance, Journal of Financial Economics 8, 205 - 258 Campa, J.M Cassiman B, Colombo M, Garrone P, Veugelers R., 2005, The impact of M&A on the R&D process. An empirical analysis of the role of technological and market relatedness. Research Policy 2005 ;34:195–220. Clement, M.N. and D.S. Greenspan, 1998, Winning at mergers and acquisitions, John Wiley & Sons Datta, S., M Devos, E, P. Kadapakkam, and S. Krishnamurthy, 2009, How do mergers create value? A comparison of taxes, market power, and efficiency improvements as explanations for synergies, Review of Financial Studies 22, 1179-1211. Dong, M., D. Hirshleifer, S. Richardson, and S. H. Teoh, 2006, Does investor misvaluation drive the takeover market?, The Journal of Finance 61, 725-762 Elgers, P.T Franks, J.R, J.E. Broyles and M.J. Hecht, 1977, An Industry Study of the Profitability of mergers in the United Kingdom, Journal of Finance, December, 1513-1525 Franks, J., R Ghosh, A., 2001, Does operating performance really improve following corporate acquisitions?, Journal of Corporate Finance 7, 151-178 Golbe, D.L Gugler, K., D.C. Mueller, B.B. Yurtoglu and. C. Zulehner, 2003, The effects of mergers: an international comparison, International Journal of Industrial Organization 21, 625-653 Hay, D Halpern, P.J., 1973, Empirical Estimates of the Amount and Distribution of Gains to Firms in Mergers, Journal of Business October 1975, 554-575 Hanson, R.C., 1992, Tender offers and free cash flow, Financial Review 27, 185-209 Healy, P.M., K.G. Palepu and R.S. Ruback, 1992, Does Corporate Performance improve after Merger, Journal of Financial Economics 31, 135-175 Higson, C., and J Higgings RC and Schall LC, 1975, Corparate bankruptcy and conglomerate mergers, Journal of Finance Holmen, M Kaplan, S. and M. Weisbach, 1992, The success of acquisitions: evidence from divestures, Journal of Finance 47, 107-138 Kim, E.H Kohers, N. and T. Kohers, 2001, Takeover of technology firms: expectations vs. reality, Financial Management, 35-54 47 Koller, T, N. Goedhart and D. Wessels, 2005, Valuation: Measuring and Managing the Value of Companies, Fourth Edition Larsson, R Lewellen, W.G., 1971, A pure financial rationale for the conglomerate merger, The Journal of Finance 26, 521-537 Limmack, R.J., 1991, Corporate mergers and shareholder wealth effects: 1977-1986, Accounting and Business Research 21, 239-251 Loughran, T. and Anand M. Vijh, 1997, Do long term shareholders benefit from corporate acquisitions? Journal of Finance 52, 1765-1790 Majd S Malatesta P.H., 1983, The Wealth Effect of Merger Activity and the Objective Functions of Merging Firms, Journal of Financial Economics 11, 155-181 Maloney, M.T., R.E