Merger Costs Research Articles

Are acute hospital trust mergers associated with improvements in the quality of care?

This study aims to assess the extent to which acute hospital trust mergers in England are associated with quality improvements. We apply an event study design using difference-in-difference (DID) and coarsened exact matching to compare the before-and-after performance of eight mergers from 2011 to 2015. We find little evidence that mergers contribute to quality improvements other than some limited increases in the proportion of patients waiting a maximum of 18weeks from referral to treatment. We postulate that financial incentives and political influence could have biased management effort towards waiting time measures. Inherent sample size constraints may limit generalisability. Merger costs and complexity mean they are unlikely to offer an efficient strategy for helping to clear elective care backlogs. We recommend further research into causal mechanisms to help health systems maximise benefits from both mergers and emerging models of hospital provider collaboration. This paper is the first to study the quality impact of a new wave of acute hospital mergers taking place in the English National Health Service from 2011 onwards, applying a group-time DID estimator to account for multiple treatment timings.

Estimating potential gains from agricultural cooperative mergers

AbstractThis study uses an ex ante data envelopment analysis approach to examine potential gains that US agricultural cooperatives may accrue from mergers. Empirical estimations utilize data from CoBank, a lender to cooperatives, consisting of 749 midwestern agricultural cooperative observations from 2011 to 2015. Potential overall merger effects are decomposed into learning effects, scope effects, and scale effects. Findings show that less other unique merger costs such as legal fees, there are significant overall potential gains in profits from mergers. Relatively smaller merged cooperatives will accrue more gains in profits compared with their larger counterparts [EconLit Citations: Q13, D20, G34].

Horizontal mergers, cost savings, and network effects

AbstractWe consider a horizontally differentiated oligopoly and investigate the relationship between merger cost savings and network effects for the incentives of firms to merge and for the postmerger welfare outcomes. We show that it is more profitable to be an insider rather than an outsider of the merger, unless both cost savings and network effects are too low. Mergers can improve customer and total welfare provided both cost savings and network effects are high enough. We find that the possibility for network effects to lead to a Pareto improvement through merger is shown to depend on the number of outside firms.

Economies of Scale and Sustainability in Local Government: A Complex Issue

Local governments may seek efficient public service delivery through scaling up production, and the quest for the optimal local government size has attracted extensive attention of scholars and policy makers. Indeed, if scale matters for local government efficiency, increasing size may be a key factor in achieving more value for money for citizens. As such, getting scale right may contribute significantly to achieving the Sustainable Development Goals (SDGs) as set out in the 2030 Agenda. Nonetheless, there is considerable uncertainty with regard to how scale shapes the average cost of local government service delivery. These uncertainties may have contributed to policy makers and public organizations disregarding the often inconclusive and sometimes contradictory empirical evidence in stimulating and allowing mergers and consolidation in many Western countries. This Special Issue is concerned with economies of scale in local government. Interesting issues to be addressed relate to the existence of general and service specific economies of scale and the implications of both for local government policy regarding various types of scaling (amalgamation, cooperation, and outsourcing). Based on a brief literature review, we inventory a number of issues which warrant further research. One of the conclusions is that the relationship between scale and sustainability is a complex issue with many aspects. Examples include the relation between economies of scale and outsourcing and cooperation, issues concerned with multi-level aspects of scale, and the trade-off that may exist between achieving economies of scale and cost efficiency (e.g., transition cost of mergers). Another conclusion is that no such thing as “one size fits all” exists. Different perspectives may play a role and should be born in mind when suggesting solutions and providing recommendations to achieve sustainable goals.

Costs of Sales Forces, Substitution between Competing Products, and Vertical Integration Decisions

Abstract This paper analyzes duopolistic firms’ vertical integration decisions with considering costs of sales forces and sales delegation under vertical integration. The main contribution of our research is showing that full vertical integration (separation) is more common when competing products are highly (weakly) substitutable. Second, contrary to conventional wisdom, an asymmetric vertical structure may not only be an equilibrium outcome but may also be optimal for consumers’ surplus in spite of yielding higher retail prices than those arising under full vertical integration. We also examine the impacts of vertical structures on welfare which have vertical merger policy relevance. First, when products are weakly substitutable, keeping vertical merger costs low may induce full vertical integration to be an equilibrium outcome which optimizes consumers’ surplus and social welfare simultaneously. Second, imposing a vertical merger tax increasing with substitution between products on firms may induce firms’ vertical integration decisions to be optimal for social welfare.

Cost Theory Analysis of Chinese Enterprises' Cross-Border m & a in One Belt & One Road Countries -- Based on Transaction Cost and Resource Theory

As One Belt and One Road (OBOR)spans 6 economic belts and 65 countries, business will inevitably encounter merger and acquisition (M & A), which are likely different from those of developed countries. Various factors such as national strength, institution, industry, companies, and timing would eventually lead to differences in the cost of merger and acquisition. This study is to establish a differential analysis model about merger cost in the context of One Belt and One Road cross-border acquisition by Chinese enterprises, providing reference for relevant researchers and realistic executors.

Independent Research and Development or Technology Mergers and Acquisitions? Decision Mechanisms of Research and Development Strategies in a Two-Stage Game

This research introduces the three variables of spillover effect, research and development efficiency, and cost of mergers and acquisitions as the chief factors affecting independent research and development and technology mergers and acquisitions based on a two-stage game theory model of research and development strategies. Using these three variables, this research explains the selection of independent research and development or technology mergers and acquisitions according to profit maximization. Based on the theory model, this research finds that costs of mergers and acquisitions and spillover effects play a significant role in research and development decisions. In addition, excessive costs of mergers and acquisitions can increase research and development expenditures, therefore reducing profit and affecting the organizational operation and development. Therefore, when the costs of mergers and acquisitions exceed a certain level, companies will abandon technology mergers and acquisitions and choose independent research and development; and a higher knowledge spillover effect reduces the costs of independent research and development, therefore increasing profit. In conclusion, given certain costs of mergers and acquisitions, a higher spillover effect helps business organizations to choose independent research and development strategies.

Revocation of a Banking License as an Instrument for Regulating Merger and Acquisition Transactions

The article analyzes the dynamics of the indicators of the merger and acquisition market in the banking sector, as well as the indicator of revocation of banking licenses. The analysis has shown the outperformance of bank decrease in relation to bank acquisition over the same period, which indicates a significant impact of license revocation on the merger and acquisition market. The article assesses the impact of the merger and acquisition market on the structure of proportional regulation in favor of banks with universal licenses. An increase in the concentration of capital is observed, especially in banks with state participation. The article investigates the methods of calculating the cost of mergers and acquisitions. The authors propose to add two more factors to the already known factors of change in earnings per share due to mergers and acquisitions: the type of license revoked by the regulator as a result of the rehabilitation and goodwill, which should be considered in the merger cost using additional coefficients. This will allow the merger cost to be more accurately determined and provide the investor with additional information for decision-making.

Methods of payment in US banks’ acquisition: efficiency perspectives

ABSTRACTDoes the efficiency classification of acquirers have any effect on the method of payment they select for their acquisition, and does the selected method of payment have any future efficiency consequences? These two questions have never been answered. The objective of this article is to examine the effect of the medium of exchange that US banks use on the consequent cost, revenue, and profit efficiencies of mergers and acquisitions for the period from 1992 to 2003. The results indicate that highly efficient acquirers lose less efficiency when using stocks in financing their acquisitions, while the least efficient acquirers only gain efficiency when mixing stocks with cash in financing their acquisitions. The distributional dynamics in the results of the acquirers’ post-merger profit efficiency show no changes in profit efficiency over time when banks use stock financing but trends towards efficiency loss when using pure cash financing and loses the most when mixing stocks with cash. The contribution of this article is a guideline on the characteristics of efficiency to decision-makers for selecting the medium of exchange in friendly acquisitions given the consequent changes in strategic efficiency after acquisitions.

Marriages of Convenience: Explaining Party Mergers in Europe

While party mergers can have important implications for the development of party systems, their causes have not been studied in a large-n comparative study. Using a new data set that covers 24 European democracies in the postwar period, this study shows that parties merge to overcome electoral thresholds or to form one of the two or three largest parties with an important role in the formation of government coalitions. However, mergers are not motivated by the goal to establish a majority, strongly dominant or largest party. The costs of mergers include ideological differences and various transaction costs related to reaching and implementing merger agreements. These transaction costs are lower if parties previously cooperated and if the partisanship of their voters is low.

CEO Preferences and Acquisitions

ABSTRACTThis paper explores the impact of target CEOs’ retirement preferences on takeovers. Using retirement age as a proxy for CEOs’ private merger costs, we find strong evidence that target CEOs’ preferences affect merger activity. The likelihood of receiving a successful takeover bid is sharply higher when target CEOs are close to age 65. Takeover premiums and target announcement returns are similar for retirement‐age and younger CEOs, implying that retirement‐age CEOs increase firm sales without sacrificing premiums. Better corporate governance is associated with more acquisitions of firms led by young CEOs, and with a smaller increase in deals at retirement age.

Risk Management in Mergers and Acquisitions

M&A statistics show that less than a third of newly merged companies has realized their planned synergistic effects and increased shareholder value. According to the author, such disgusting situation is due to improper planning and failure of corporate management to understand the importance of risk management in M&A. Lack of practice in identification, evaluation, mitigation and regular monitoring of risks leads to the situation when many companies merge despite the fact that the merger bears substantial risks. Corporate management fails to include risk mitigation expenses in merger costs. In many cases, risk mitigation expenses may be so substantive that the merger loses its attractiveness. Only few companies implement risk management methodology while planning M&A activity. This methodology may anticipate and minimize the consequences of various risk factors that negatively influence integration process. The article suggests an implementation of risk management best practice. This risk management best practice may act as an effective tool of successful realization of synergistic effects in M&A and may be helpful in increasing shareholder value in post-merger period. Risk management is conducted throughout the stages of merger and includes identification, analysis, assessment, management and monitoring of risks. Implementation of risk management at early stages of merger planning significantly decreases uncertainty in relation to achievement of financial and operational goals of newly merged company. The article provides with typical M&A risk matrix that may be adapted for specific M&A project. Risk matrix includes a register of risks sorted by stages of M&A deal, quality assessment of their probability, influence and impact on merger as well as risk mitigation methods.

The merger process between libraries of MLSultan and Technikon Natal: reflections of a practitioner

Education Minister Kader Asmaf's plan to merge many of South Africa's tertiary institutions has given impetus to the merger of two of the country's oldest technikons, Technikon Natal and ML Sultan, both located in the city of Durban. This paper briefly sets out the scenario facing the institutions and the libraries, pre-merger as well as post-merger. It also provides a cursory glimpse of a few institutional challenges, some lessons learnt, and finally some recommendations. The primary focus of this paper is not, however, to document the process involved in the merger of the libraries of these two institutions. This process was managed as a project, with a Project Manager being nominated from among the library staff. Various merger structures were put in place in order to facilitate participation by all staff. A Merger Management Committee (MMC) was established and departmental workgroups were formed consisting of relevant staff from both libraries. Representatives from these workgroups were elected to form a Sub-Committee that served as a liaison structure between staff and the MMC. Regular meetings of all these groups took place as well as staff workshops and briefing meetings. Astructure/model for the merged library was agreed to and estimates for database merger were calculated. Consensus was reached on many areas of function and service for the merged library, with common policies and procedures being formulated. Various committees are now working on space and HR issues. Although this has been a voluntary merger, the newly formed Durban Institute of Technology (DIT) created out of the merger of ML Sultan and Technikon Natal institutions, has been experiencing some turbulent times in its short history. It is heartening to note that, from the libraries' point of view, the above has all been achieved in spite of the prevailing cfimate of unease regarding mounting merger costs and employment uncertainty among staff. A time-line reflecting milestones in the merger process has been listed in the Appendix. It provides additional information and should be read in the context of the text.

Leadership by fragmented destruction after a merger: an example from a facility of acute psychiatry.

Hospitals are labor intensive facilities based on highly skilled employees. A merger of hospitals is an effort to increase and rationalize this production. Decisions behind a merger are made at the top leadership level. How this might be done is demonstrated by examples from a 36 bed acute psychiatric facility. The aim of the study was to calculate the hidden costs of fragmented destruction of parts of a total hospital supply to patients after a merger. Fragmented destruction is the deliberate stopping of activities deemed not part of the core activities of the hospital without due consideration of the impact on core activities. The proposed changes to operational expenses at a single acute psychiatric hospital were materials for the study. The changes included activities as a reduction in local laboratory service, cleaning services, closure of physiotherapy unit, closing of cultural activities and reduced productivity. The selected activities are calculated as giving an imputed gain of € 630,000 as indicated by the leadership. The not calculated costs of reducing or removing the selected activities are estimated at € 1,955,640. The cost of staff disappointment after a merger is difficult to assess, but is probably higher than assumed in the present calculations.Imputed cost containment is not attained. The calculations indicate that implemented changes may increase cost, contrary to the belief of the leadership at both the hospital level and further up in the hospital trust.Arguments in favor of a merger have to be scrutinized thoroughly for optimistic neglect of uncalculated costs of mergers. Future hospital mergers and selected fragmentation of productive tasks at ward or hospital levels should include calculations of unavoidable costs as shown in the present paper.

Editor's Column

This is my first Editor's Column of the Business Valuation Review. I am honored that Roger Grabowski and the Business Valuation Committee considered me for the task. As all know, Roger Grabowski is a giant in the business valuation field. His encyclopedic knowledge is well known, and his communication skills are the best. We are all most grateful for his service to our field, not only through his editorial services to the Business Valuation Review, but also his many insightful articles, courses taught, presentations, and the massive work, Cost of Capital, he co-authors with Shannon Pratt. Roger Grabowski is a hard act to follow.The Business Valuation Review depends on article submissions. I encourage you to submit articles—please refer to the Call for Papers on page? If you feel your work load is too high to spend time researching and writing on your own, please consider partnering with a finance or economics professor as a co-author. Academics need to publish to maintain their standing in academe.1 Academics may have access to some data you, the “practitioner” may not have, and you may have access to data they might not have; so you may find working with an academic to be a fruitful pooling of efforts. In addition, academics have the training to apply quantitative analytical methods to data and theories that most practitioners do not have. However, you, the practitioners of business valuation, have insights into finance and valuation that academics do not have. So with your experience with real-world issues and academics' quantitative skills, it can be a winning combination.Furthermore, it is nice to be able to report on your resume that you are the author of a solid article published by the premier journal in our field. Publishing in the Business Valuation Review will distinguish you from other “experts” through your contribution and your professional colleagues' recognition.There is no lack of important issues that need investigation and elucidation. The “experts” have not finalized the approaches to valuation issues. There is much to investigate, like the cost of capital, discounts for lack of marketability or control, liquidity, systematic risk, unsystematic risk, restricted stock studies, analyses of private company transactions, closed end funds' discounts, takeover premia, forecasting growth, measuring risk, private company values vs. public company values, financial distress, legal case analyses, accounting issues, the valuation of exotic and not so exotic options, as well as preferred stock and debt, and the list goes on. Have you had the thought, “I wonder about ______ (fill in the blank)?” Well, that may be an excellent topic for an article. What problems are you trying to solve? They may also be food for articles.The Business Valuation Review has been at the forefront of the business valuation field for more than thirty years because of the dedicated professionals in the business valuation field, and we appreciate your contributions.Dan McConaughy is a Director in Valuation Services at Crowe Horwath LLP′s Los Angeles office, and he is a Professor of Finance in the Department of Finance, Financial Planning and Insurance at the College of Business and Economics at California State University Northridge. He consults regarding the valuation of businesses and business interests, derivative securities, economic damages, and intangible assets for bankruptcy, financial reporting, tax purposes, mergers and acquisitions, financial structuring, and litigation support services.Dr. McConaughy has a PhD in Finance from the University of Cincinnati, PhD and MA degrees in Syriac and Greek from the University of Chicago, and a BS in Business Administration from the College of Charleston. He has published more than 25 publications in academic and professional journals in the areas of cost of capital, capital structure, IPOs, mergers and acquisitions, illiquidity discounts, family business, executive compensation, and restricted securities under Rule 144. He was the co-editor of the Journal of Small Business Management.

Leadership by fragmented destruction after a merger: an example from a facility of acute psychiatry

Hospitals are labor intensive facilities based on highly skilled employees. A merger of hospitals is an effort to increase and rationalize this production. Decisions behind a merger are made at the top leadership level. How this might be done is demonstrated by examples from a 36 bed acute psychiatric facility. The aim of the study was to calculate the hidden costs of fragmented destruction of parts of a total hospital supply to patients after a merger. Fragmented destruction is the deliberate stopping of activities deemed not part of the core activities of the hospital without due consideration of the impact on core activities. The proposed changes to operational expenses at a single acute psychiatric hospital were materials for the study. The changes included activities as a reduction in local laboratory service, cleaning services, closure of physiotherapy unit, closing of cultural activities and reduced productivity. The selected activities are calculated as giving an imputed gain of € 630,000 as indicated by the leadership. The not calculated costs of reducing or removing the selected activities are estimated at € 1,955,640. The cost of staff disappointment after a merger is difficult to assess, but is probably higher than assumed in the present calculations. Imputed cost containment is not attained. The calculations indicate that implemented changes may increase cost, contrary to the belief of the leadership at both the hospital level and further up in the hospital trust. Arguments in favor of a merger have to be scrutinized thoroughly for optimistic neglect of uncalculated costs of mergers. Future hospital mergers and selected fragmentation of productive tasks at ward or hospital levels should include calculations of unavoidable costs as shown in the present paper.

Are bank mergers procyclical or countercyclical? Theory and evidence from Taiwan

This work develops a theory of countercyclical bank mergers and finds supported empirical evidence in Taiwan. Procyclical (countercyclical) mergers tend to involve higher (lower) measures of merger activities during economic booms than downturns. Several previous studies suggest that bank mergers are procyclical in developed countries, possibly driven by the higher capital liquidity that accompanies an economic expansion. Alternatively, this work emphasizes the role of economic situation and the government in bank mergers. Our results suggest that the depressed industrial situation, which leads to severe competitive market and impoverished revenue basis, drives banks to increase their market share for reducing competition through merger with the merger cost as low as possible by utilizing government's offering and the beneficial condition of stock market. Merger activities may be explained by the motivation of generating higher profit and able to survive, whereas the banks with insufficient competitivenes...

R&D Spillovers and Foreign Market Entry: Acquisition versus Greenfield Investment

This paper presents a three-stage game to model the entry behavior of a multinational firm in the presence of R&D spillovers. The multinational firm's entry mode choice – that is, to invest to set up a new plant or merge with a local firm – is a function of the magnitude of spillovers, as well as the relative cost of greenfield investment, and mergers and acquisitions (M&A). Our model shows that if there exist relatively high R&D leakages and relatively small difference in cost between M&A and greenfield investment, an R&D-intensive foreign firm tends to choose greenfield investment rather than M&A, while if there exist relatively low R&D leakages, the foreign firm is more likely to choose M&A rather than greenfield investment. It is also shown that the size of social welfare of the host country depends on the degree of R&D spillovers. These results produce strong implications for antitrust policy for particularly developing countries.

Technology Inertia and the Benefits of Entry

Abstract We study the effects of entry on price in an industry. This assessment is usually carried out under the implicit assumption of “technological inertia”: incumbents cannot change their technologies in response to entry. We remove this assumption by modeling a game where, before quantity competition, firms choose technologies. We identify parameter configurations where, after entry, the incumbent(s) changes technology. This leads either to a higher price after entry or to a “dampening effect” on price reduction. This effect is shown to be relevant when evaluating the welfare gains from measures intended to foster competition by increasing the number of competitors. The converse proposition could be stated for evaluating the social costs of mergers.

Does the Dearth of Mergers Mean More Competition?

We study mergers in a duopoly with differentiated products and noisy observations of firms' actions. Firms select dynamically optimal actions that are not static best responses and merger incentives arise endogenously when firms sufficiently deviate from their collusive actions. The incentive to merge trades off the gains from avoiding price wars against the gains from a monopoly net of the fixed cost of merging. Depending on the merger cost, there are three merger outcomes: if the cost is low, firms merge immediately, if it is high, they never merge, and, in an intermediate cost range, there are endogenous mergers for which we derive a number of novel results. First, we characterize the firms' shares in the merged firm as a function of firm and product market characteristics. Second, we show that long periods of pre-merger collusion are supported, because collusion is dynamically stable and merging is unstable, with mergers occurring only when collusion has failed, and hence the dearth of mergers need not mean more product market competition. Third, the acquiring firm's pre-merger returns are first positive and then become negative just before the merger occurs, while the target firm's returns follow the opposite pattern. Fourth, there are no announcement returns when industry concentration changes due to mergers.