Exploring Improvements of Post-Acquisitions Corporate Performance in Industrial Sector in the Egyptian Stock Market

Ahmed Wael Abdelrahman

doi:10.11648/j.jfa.20190703.11

Abstract

The purpose of this study is to examine the impact of Egyptians Acquisitions on the post-performance of the acquired companies from the period of 2003 to 2015 by the use of event study methodology. This is done by studying the financial post-performance (includes: liquidity, activity, profitability and capital structure ratios) of a sample consists of 17 companies from the industrial sector as dependent variables, and comparing their results with the pre-performance and the acquisition event as an independent variable. By using a non-parametric Mann-Whitney-Test that can replace the unpaired t-test in the case of small samples, in addition to the factor analysis. The Study tests the significant difference between performance of the acquired companies before and after the acquisition. Empirical results for the whole sample showed a negative significant difference between both the profitability and the capital structure performance of the acquired companies before and after the acquisition. On the other hand, it showed an insignificant difference between both the liquidity and the activity performance of the acquired companies before and after the acquisition. Studying the sub-industrial sectors shows that the Industry Sector has an impact on the performance of the acquired companies and that appears in The Basic Resources and Utilities Sub-sector liquidity, profitability and capital structure performance and has no impact on financial activity performance. For the Construction and Materials Sub-sector there is no impact on the liquidity, profitability and financial activity performance. However, there is a significant impact on the capital structure. For the Personal and Household Products Sub-sector, there is a significant impact on profitability performance, and there is no impact on liquidity, financial activity, and capital structure performance. For the Food, Beverages and Pharmaceutical Sub-sector there is no impact on the liquidity, profitability and financial activity performance and there is a significant impact on capital structure performance. By studying the impact of the Capital Issued on the post-performance of the acquired companies, the researcher showed that there is an impact on the capital structure performance for the acquired companies below 50 M and on profitability performance above 50 M issued capital. On the other hand, there is no impact on the other performance measures for companies above and below 50 M issued capital. Finally, the study results introduced some useful recommendations for the acquisition events in the Egyptian Market.

Highlights

As a result of globalization and liberalization policies in the last two decades starting in 1991, The Egyptian Economy has taken a significant and vital transformation and structural changes
A negotiation process is involved between the two companies, while in acquisition case a company buys fully or partially the other one, and in most cases, the target companies are acquired by the acquirers by buying their stocks
These purposes are, strategic purpose, that make use of the merger or acquisition activity to accomplish specific strategic objectives, speculative purpose, where the target company is being viewed as a commodity by the acquirer, management failure purpose, where sometimes companies being forced to go to the deal because of failures of management, financial necessity purpose, where the companies need to make a takeover for financial necessity reason, and political use, where some political influences are significantly affecting the decision to go to merger and acquisition activities

Summary

Introduction

As a result of globalization and liberalization policies in the last two decades starting in 1991, The Egyptian Economy has taken a significant and vital transformation and structural changes. The Merger and Acquisition activity is so large for many countries in the Middle East for the following reasons: (1) The acquiring firms may benefit access to proprietary technology and information; (2) mergers and acquisitions help the firms to involve expand their new and existing products to other markets; and (3) Both the acquiring and the target firms may achieve greater synergy through economies of scale and elimination of duplicating functions and tasks. These benefits of mergers and acquisitions should develop the competitive advantage of firms in the region. The Fifth Merger wave started in the early 1990s was attributed with Globalization that is a consequence of technological change and falling trade barriers and finished before September 11th

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Results