The Firm Valuations in Mergers & Acquisitions, and Its Impacts on Key Financial Ratios: Evidence from Banking Industry in UK over the Period of 2000-2013

Abstract

Companies set various of strategies to enlarge and expand their business to the different markets in both domestic and global scope. According to Santos et al (2012) and Akgobek (2012), these strategies generally based on an internally growing which is expressed as raw organic growth of the firm, or externally expansion that is building strategic corporation bridges such as mergers and acquisitions (hereinafter referred as M&A). Moreover, according to Khan (2011), the recent economic difficulties, besides a cut throat competition in the financial markets, bereave the chance of week structured firms to survive, and forcing them either to death or M&A. On other hand, as Kyei-Mensah (2011) states, the most recent business expansions at international level are made through M&A, due to its less cost of market entrance than other methods, and it is a phenomenon that the corporate investment is the quickest way to increase shareholders wealth. Plus, according to Kumar and Bansal (2008), Malucha (2009), and Akgobek (2012) another rationale of preference of M&A strategy too often is establishing greater market power, and getting a competitive advantage over rivals. They believe that M&A and other strategic alliances are reforming the structure of the corporation by empowering its competitive relations in the market.Furthermore, as rationale of M&A, Roberts et al (2003) opine that besides gaining access to new markets, seizing access to source of raw materials can be aimed as aftermath of the strategy for new opportunities. Moreover, as Malucha (2009), Khan (2011), and Akgobek (2012) state, merge of two entities sometimes creates more new value than sum of each separate, which is know as synergy effect, and this can entice the firms at tough periods. Also, the author believes that, one another motive behind M&A is that it helps to increase the market share and cost efficiency of the firm. Moreover, according to Motis (2007) and Akgobek (2012), the M&A strategy can be aimed as feasible method of growing in particular markets by diversifying the risk associated assets, and thus increasing the efficiency.