The Impact of M&A on the Value of Firms

Abstract

The scope of this project, “The impact of M&A on the value of firms”, is to show the impact of M&A activity on the value of target firms in the public sector by using event study methods and discuss the impact of acquisitions on the value of both acquirers and target firms. To further analyse the project I have divided the event study into two parts. The first is the estimation window which consists of a one hundred and fifty (150) day period running from minus one hundred and fifty five (-155) to minus six (-6) and the second is the event window which consists of an eleven (11) day period running from minus five (-5) to plus five ( 5).Two types of data are given, one is public firms and the second one is private firms. Shares of privately-held firms are usually illiquid and this leads to price discount according to Martynova and Renneboog (2006). The acquisition for a private firm entails higher threat for the acquirer due to a smaller amount of dependable information about the growth potential is available as stated by Martynova and Renneboog (2006). As a result, I have analysed public firms and found out the abnormal returns, average abnormal returns (AAR) and the Cumulative Average Abnormal Return (CAAR) for target firms. I have also analysed the acquirers of both the public and the private firms in order to make a comparison in the Data Description section. Lastly, I have examined the acquirer and target public industry sectors in which the M&A takes place over the span of 300 acquisitions in order to make an astute analysis of the industries that UK acquirers prefer.