Bones of Contention - What Drives Mergers and Acquisitions in Emerging Markets?

Abstract

The objective of the paper is to offer an evaluation of existing theories towards understanding the increase in mergers and acquisitions in an emerging market such as Turkey. A review of the existing theoretical and applied literature suggests that the neoclassical hypothesis (the q theory of investment) lacks in its content both when it comes to accounting for the role of the firm in production and the role of institutions in the process of industrial restructuring. The (revised) q theory is therefore not sufficient towards offering a general theory of mergers and acquisitions that can extend to explain the phenomena in emerging markets. The different available theoretical hypotheses are confronted with information about acquisitions and financial data for Turkey. There is no evidence that acquirers targeted specific industries (except banking) because of the large firm bias in the sampled transactions. There is also no evidence that acquirers targeted specific firms (high or low performing). Also, there is no evidence that Turkish acquirers came from specific firms (high or low performing or relatively larger firms). The only patterns that emerge from the analysis is that the institutional hypothesis of clustering in time and by industry is confirmed also for Turkey and that asset matching in Turkey (whether the assets sold went to local or foreign owners) was synergistic in nature except during episodes of financial crisis. Based on the ex-ante characteristics of firms (including poor performance of vendors and frequent trading of same targets) involved in these events the research suggests that the Turkish M&A market is more a rope pulling contest in a seller’s market than a beauty contest in a buyer’s market.