Post-acquisition Period Research Articles

Financial Risks in Mergers and Acquisitions (M&A): A Case Study of SolarCity’s Acquisition by Tesla

Mergers and acquisitions have morphed into a gateway for financial prosperity. However, research shows that a significant number of these deals do not pan out well thus introducing an element of risk. With Tesla geared at maintaining its position as a leader in the renewables market, its acquisition of SolarCity in 2016 is worth appraising. With quarterly data from Tesla, the study employs a mixed approach to ascertain the changes in various aspects of financial risk for the company. Results show that liquidity risk and solvency risk characterize Tesla’s post-acquisition period. This is further corroborated by insights from the profitability ratio analysis. As much as Tesla’s seems to be generating steady cash and posting high returns on its equity, the high lever is what seems to be playing a significant role. However, the silver lining in Tesla’s case is that the solvency ratios appear to be improving over time.

Acquiring for innovation: Evidence from the U.S. technology industry

We investigate the effect of corporate innovation on mergers and acquisitions (M&A). Using a sample of 786 public-to-public transactions in the U.S. technology sector, we show that acquirers are willing to pay higher premiums for more innovative target firms. This effect is amplified by the acquirer's own level of innovativeness as more innovative acquirers are willing to pay higher premiums for innovative targets than non-innovative acquirers. We further document significant strategic reactions of rival firms. In the aftermath of the M&A, all acquirer rivals increase their R&D spending but the effect is more pronounced for innovative rivals than for non-innovative ones. Innovative acquirer rivals are also more likely to acquire a technology firm in the aftermath of their competitor's M&A announcement than their non-innovative peers. The similarity between acquirers and their rivals shrinks in the post-acquisition period, which may be caused by rival firms extending the breadth of their technological search in response to the acquisition.

From Fit to Fitting: A routine dynamics perspective on M&A synergy realization

Many mergers and acquisitions (M&A) fail to achieve anticipated synergistic benefits. The combination of resources and processes is particularly difficult. This paper uses a routine dynamics perspective to study an acquisition in the consultancy sector where the strategy of combining two routines, designed to commercialize a new offer, failed. Zooming in on the micro dynamics of synergy realization, we show how the envisioned design was challenged only once the combined routine was enacted. The joint performance of the routine revealed incompatibilities at three levels: within the combined routine; with adjacent routines; and across the merging organizations. We identify two mechanisms that drive these incompatibilities: conflicting actors’ intentions and conflicting organizational norms. We discuss how synergy realization requires both the converging of intentions and norms and the interweaving of actions, routines, and organizations. Our paper contributes to M&A research by challenging the notion of “fit” as a prerequisite for success and by developing the notion of “fitting” as an unfolding process, i.e., through a design–action loop in which sources of incompatibilities are revealed and adjusted. We elucidate the dynamic and iterative nature of synergy realization and argue for a rethinking of pre- and post-acquisition periods as fundamentally interlinked. We also contribute to research on routine dynamics by enhancing the understanding of routine interdependencies and the intentionality of routines in cross-organizational settings.

Association Between Private Equity Acquisition of Urology Practices and Physician Medicare Payments

To assess whether private equity (PE) acquisitions of urology practices were associated with changes in Medicare payments and patient volume. We identified PE acquisitions of urology practices through financial databases, industry news outlets, practice websites, and Google search. Using the Centers for Medicare and Medicaid Service's Medicare Provider Utilization and Payment Data: Physician and Other Supplier Public Use File (2012-2019), we conducted descriptive statistics and trends analysis to examine whether PE acquisition was associated with changes in Medicare payments and patient volume in comparison to non-PE affiliated urologists within the same states. We identified PE acquisitions of 10 independent urology practices across 6 states during the study period. In the preacquisition period, urologists later joining private-equity groups received greater mean inflation-adjusted Medicare payments ($246,977 vs $160,038; P <.001) and had greater patient volume (839.7 vs 674.2 patients; P = .001) than urologists who did not. In the postacquisition period, PE affiliated urologists had an 11.0% (95% CI: -0.2% to 22.3%) increase in inflation-adjusted Medicare payments (P = .054) and a 12.5% (95% CI: 6.5%-18.6%) increase in patient volume (P <.001). Non-PE affiliated urologists exhibited a 6% decline in Medicare payments (P <.001) and a 2.7% increase in patient volume (P <.001). PE affiliated urologists exhibited increases in Medicare payments even prior to acquisition, in contrast to declines for geographically similar, non-PE urologists. These findings may highlight characteristics of practices targeted by PE firms and local practice trends that may further diverge following acquisition.

Do FinTech acquisitions improve the operating performance or risk profiles of acquiring firms?

We examine whether firms that acquire FinTech firms experience improved post-acquisition operating performance and/or reductions in risk profile. We employ a difference-in-differences methodology to analyze changes in the acquiring firm’s operating performance and risk profile before and after an acquisition. We present strong evidence that the risk profiles of acquirers significantly improve in the post-acquisition period, but our results provide no evidence that acquirers experience improved firm operating performance following a FinTech acquisition (in terms of higher CFR or ROA).

Ownership, capital structure and operating loss of acquiring firms

PurposeThe article aims to investigate the effects of ownership and capital structure on postacquisition operating performance.Design/methodology/approachThe article extends the ongoing literature from an operating loss perspective and provides empirical evidence on the probability of acquirers’ operating loss in relation to ownership and capital structure. The operating performance of publicly listed manufacturing firms in China was tracked up to five years since the completion of the mergers and acquisitions (M&amp;A) during 2003–2014.FindingsThe empirical results show that, in a five-year postacquisition period, state-owned enterprises (SOEs) are more likely to experience operating loss than non-SOEs. The likelihood of the operating loss is negatively associated with ownership concentration, implying that concentrated ownership may serve as an effective corporate governance mechanism in the emerging economy and improve postacquisition performance. The rise in leverage increases the likelihood of postacquisition operating loss, indicating that the costs of debt may outweigh the benefits.Originality/valueThe findings contribute to the literature on ownership, debt governance and post-M&amp;A performance from an emerging economy perspective.

TRANSFORMATIONAL LEADERSHIP IN THE SERVICE OF ORGANIZATIONAL CHANGES

The complex and dynamic environment in which modern companies operate requires frequent organizational changes that are used as a mechanism for adapting the company's business to market requirements, in order to improve or maintain a competitive advantage. Mergers and acquisitions, as a complex form of organizational change of companies, represent a relevant problem area of ​​research. Since the success of organizational change depends on two important factors, leaders and employees, the aim of this research is to identify the interdependence of transformational leadership, job satisfaction and commitment to organizational change by employees in the post-acquisition period. The research results show that there is interdependence between transformational leadership, job satisfaction and commitment to organizational change in the post-acquisition period. The empirical research was conducted in 2021, using a survey method. Data were analyzed using Pearson’s correlation and single as well as multiple regression method. A sample of 129 respondents was taken into accounts, who are employed in companies in the Republic of Serbia that have gone through the acquisition process in the last five years.

Acquisitions and the cost of debt: Evidence from China

A large body of literature has examined the effect of mergers and acquisitions (M&As) on firm valuation, and generally find that M&As reduce acquirers' shareholder value. However, relatively little is known about the effect of M&As on the pricing of corporate debt by debtholders, especially for firms in less developed countries. Using a sample of Chinese listed firms with outstanding bonds from 2007 to 2020, we find that the cost of debt is lower for acquirers than for non-acquirers, and that the effect of acquisitions in reducing cost of debt is more pronounced for firms from provinces with less developed markets, for private firms, and for firms undertaking cross-province acquisitions. Our results are robust to a series of robustness checks that address various endogeneity concerns, including the use of a matched-sample approach, the use of the Heckman two-stage model and a change analysis, the control for acquirers' pre-acquisition bond yield spread, and the exclusion of acquisitions of publicly listed targets. Our analyses of provincial institutional factors show that the relationship between M&As and cost of debt is moderated by government relations to market, private economy development, and the development of market intermediaries and legal environment. We further document that acquirers have lower default risk during the post-acquisition period because of a coinsurance effect, and that acquirers attract more analyst following and investors after acquisitions. Overall, our results indicate that acquisitions can reduce cost of debt through reducing firms' default risk and information risk, and that institutional factors matter for the effect of M&As on the cost of debt.

The Effects of Corporate Social Responsibility on Overseas Mergers and Acquisitions

This survey studies the effects of corporate social responsibility (CSR) on overseas mergers and acquisitions (overseas M&amp;As) on acquirers’ corporate social responsibility (CSR) using a sample of Ghana multinational firms and MBA students. This study reveals that firms with overseas M&amp;A activities experience an improvement in CSR performance during the post-acquisition period, and this positive effect is more distinctive when the acquisition of targets is from developed markets than from emerging or low-quality markets. Besides, acquirers significantly improve CSR performance following their overseas acquisitions, suggesting that acquirers initiate efforts to improve CSR performance to gain legitimacy in host countries. The study equally finds that host country legal origins, social norms, and the acquirers’ exposure to multiple jurisdictions hold the keys to improving the CSR performance of acquirers. The results appear robust and valid to various measures of CSR and are effective when endogeneity concerns are addressed. Further analyses disclose that overseas M&amp;A firms with high CSR performance show greater CSR initiatives. Overall, our findings add to the field of literature on the influence of legal and social norm origins on shaping stakeholder-oriented practices by showing how overseas M&amp;As may aid as a critical channel through which overseas acquirers bond themselves to the better CSR practices of the host countries. Keywords: Corporate Social Responsibility, Mergers and Acquisitions and Overseas Investment DOI: 10.7176/EJBM/13-6-15 Publication date: March 31 st 2021

Internal governance and corporate acquisition activities

The literature shows that the performance of bidders has been historically poor both in the short run and in the long run. Agency theory tells us that unless CEO owns 100% of the firm, the decision-making process would deviate from shareholder value maximization. Building upon the theory of internal governance by Acharya et al. (J Financ 66(3):689–720, 2011), this study documents the salutary effect of the novel governance mechanism on corporate acquisition activities. Internal governance is optimal if neither the CEO nor her subordinates are dominating. The curvilinear relationship suggests that when power and responsibility sharing is balanced in acquiring firms, myopic CEOs would have lower acquisition propensity, lower likelihood of targeting public firms, higher deal completion rate, and stronger short term gains. A system of regression equations is applied to mitigate the concerns about potential endogeneity and selection bias. Moreover, the empirical evidence demonstrates that good internal governance has strong predictive power for long term performance in the post-acquisition period, which sheds light on the influential role of subordinates in post-deal integration.

Transformational leadership in the service of organizational changes

The complex and dynamic environment in which modern companies operate requires frequent organizational changes that are used as a mechanism for adapting the company's business to market requirements, in order to improve or maintain a competitive advantage. Mergers and acquisitions, as a complex form of organizational change of companies, represent a relevant problem area of research. Since the success of organizational change depends on two important factors, leaders and employees, the aim of this research is to identify the interdependence of transformational leadership, job satisfaction and commitment to organizational change by employees in the post-acquisition period. The research results show that there is interdependence between transformational leadership, job satisfaction and commitment to organizational change in the post-acquisition period. The empirical research was conducted in 2021, using a survey method. Data were analyzed using Pearson's correlation and single as well as multiple regression method. A sample of 129 respondents was taken into accounts, who are employed in companies in the Republic of Serbia that have gone through the acquisition process in the last five years.

Impact of merger and acquisition on Indian steel companies- A case study approach

The present paper is an endeavor to critically analyze the financial health of Indian steel companies during pre and post acquisition period. The study is also an endeavor to analysis the impact of acquisition on the acquirer company after such acquisition. Data are collected from audited balance sheet, profit and loss account of the concerned companies, CMIE data base, BSE and NSE and money control.com. To facilitate the study different types of ratios are selected and paired t-test is applied. The result showed that post acquisition liquidity, profitability, efficiency and cash flows of the selected companies’ decline in a significant way. Paired t-test is applied in the study at 0.05 significant levels to compare overall financial position of the selected companies during before and after acquisition. Financial ratios of whole sample show there is a significant deterioration in the mean of all selected ratios of acquirer companies. With a series of merger and acquisition taking place in Indian steel industry so far more than a half of the bidder firms demonstrated depressed financial performance in the post acquisition time as compared to pre acquisition period. Keywords: Corporate reconstruction, Merger and acquisition, Paired t-test, Financial performance of Indian steel companies.

Merger and Acquisition and Perfomance of Deposit Money Banks in Nigeria: Pre and Post Analysis

Low capital base, insolvency, poor corporate governance and incessant banks distress among other factors have contributed to the recent failure of banks in Nigeria. To curb such challenges, banks all over the world now adopt mergers and acquisitions as a strategy to improve their performances. Therefore, this study examined the impact of mergers and acquisition on the performance of deposit money banks in Nigeria. The study considered capital structure, asset profile, total deposit and profit after tax of the selected bank as the measurement for the performance and effect of merger and acquisition of the bank in both pre and post merger and acquisition period. Data were collected from the published financial statements of the bank namely former Intercontinental Bank Plc and Access Bank (now Access Bank Plc) from 2005 to 2017 and the model was formulated using ordinary least square method. It was revealed that for both the pre-merger and post-merger periods, it was revealed that the access bank performed better. In the post – merger and acquisition period as asset profile and total deposit has no significant effect on the profit after tax of access bank in Nigeria, while capital structure has a significant effect on profit after tax of access bank plc. While in the pre-merger and acquisition capital structure, asset profile and total deposit have no significant impact on profit after tax of access bank plc. The study concludes that mergers and acquisitions have a significant impact on the performance of deposit money bank in Nigeria. Therefore, the study recommended that banks can merge or acquire one and other. This has proved to be an effective strategy for rescuing ailing or weak banks. This would provide financial muscles and managerial competence that would enhance financial performance.

The Impact of Acquisition on Firms Financial Performance (A Case Study of Total Petroleum Ghana LTD)

This work evaluates the impact of Acquisition on Firms’ Financial Performance. That is a case study of Total Petroleum Ghana. Acquisition is a corporate strategy by which companies take over other company without necessarily buying the other company. The main reasons behind this study were to assess Pre and Post-Acquisition liquidity of total petroleum Ghana, and also to determine the Pre and post-Acquisition profitability of total petroleum Ghana. Moreover to evaluate Pre and Post-Acquisition asset utilization of total petroleum Ghana Company Limited. The results of the findings show that in terms of liquidity, there was a significant impact of the acquisition on the performance. Post-acquisition liquidity ratios indicated significantly higher performance. Moreover, for the profitability and assets utilization, the pre-acquisition performances were better than the four years of the post-acquisition period, though these differences were statistically insignificant. By making references to the findings it can be concluded that the acquisition of Mobil oil by Total petroleum has not been profitable to the company within the first four years. This work recommends that management of the company need to pay more attention on the external environment. Keywords: Acquisition, Petroleum, Profitability, Performance, Firms DOI: 10.7176/EJBM/12-30-08 Publication date: October 31 st 2020

Do frequent acquirers outperform in cross-border acquisitions? A study of Indian companies

Purpose The purpose of this paper is to examine the impact of cross-border acquisitions (CBAs) on the financial and operating performance of acquiring firms from emerging economies in the long-term; the acquiring firms have been segregated into frequent (multiple) and first-time (single) acquirers based on their prior cross-border experience. The intent is to identify if overseas activities bring over and above advantage to multiple acquirers in terms of enhanced financial synergies and reduced costs, motivating them to engage in sequential international transactions. Design/methodology/approach The paper analyses the impact of CBAs announced and completed during 2004–2013 by Indian companies listed on the NIFTY 500 index. The post-acquisition financial and operating performance of Indian cross-border acquirers has been compared with their pre-acquisition performance. The average performance over three-years immediately preceding the acquisition year constitutes the benchmark for the post-acquisition performance. The post-acquisition period includes a year of integration followed by three successive post-integration years. Therefore, in operational terms, the research period extends from 2001–2017. The long-term performance of frequent (multiple) and first-time (single) Indian acquirers has been investigated comprehensively using a set of 16 financial ratios. The performance has been assessed using the secondary data collected from financial statements of acquiring companies; the financial statements and the list of CBAs by Indian companies have been obtained from Thomson Reuter’s EIKON database. Findings The financial and operating performance of frequent as well as first-time acquirers have depicted a similarly deteriorating trend during the post-acquisition period. These findings indicate that the international expansion of Indian companies is not guided by synergy creation potential and may be pushed by the overconfidence or over-optimism and agency conflicts of managers. This, perhaps, indicates that firms are being imprudent in investing free cash flows available with them. Originality/value The study is the first of its kind. No study, to the best of the authors’ knowledge, has analysed the performance of acquiring firms by segregating them into frequent and first-time acquirers using accounting measures of performance. More so, an extensive analysis of the long-term financial and operating performance of acquiring companies is rare to come across in the extant literature.

Do insider CFOs deliver better acquisition performance?

We document that acquirer firms with insider CFOs achieve superior industry-adjusted operating performance in the post-acquisition period relative to firms with outsider CFOs, utilizing a sample from 1994 to 2014. Unlike insider CEOs, we find that insider CFOs do not differ from outsider CFOs in the acquisition deal types they undertake. However, they achieve significantly higher factor productivity gains after the acquisition. Our analysis suggests that the ability to identify targets that can yield higher synergy gains and the ability to integrate the target within the firm are behind the superior post-acquisition returns of insider CFOs. Our results are robust to various time-windows and a range of robustness tests regarding model specification—such as including additional firm level controls, alternative performance measures, and controls for firm overconfidence and CFO education, overconfidence and pay.

Culture and earnings quality in cross-border acquisitions

This paper examines the effect of culture on earnings quality following cross-border acquisitions using a sample of US public firms acquiring foreign firms. We find that, in general, the earnings quality of the US acquirer declines during the post-acquisition period in a cross-border acquisition of a foreign firm. In addition, we find that the culture of the foreign target impacts the earnings quality of the US acquirer during the post-acquisition period. Using the Hofstede's (1980) cultural dimensions, we specifically find that the degree of individualism and uncertainty avoidance prevalent within the target nation impact the earnings quality of the US acquirer.

The Impact of Merger and Acquisition on the Financial Performance of the Nasdaq Listed Small Size Technology Companies

Merger and acquisition is a management strategy for corporate restructuring in which consolidation of companies can result in rapid business growth. The paper aims to analyze the impact of merger and acquisition on the financial performance of the business organizations in the technology sector. Therefore, the nine NASDAQ listed technology companies have been selected for this study. The financial data has been collected from the SEC, NASDAQ, and annual reports of the companies. The total study period comprises of twenty-two years ranging from 1996 to 2017. The statistical tool, Independent sample t-test, is applied on the fourteen financial ratios for four years before the merger and four years after the merger. The results of the paper show, that there is an improvement in liquidity, efficiency, and profitability, whereas the leverage ratio has deteriorated during post-acquisition. The study further examines that the profitability ratios are found to be accompanied by a more significant increase than a significant decrease in profitability ratios, and liquidity ratios found to decrease significantly more than significantly increased liquidity ratios. The cash flow has only increased significantly, whereas the leverage ratio has decreased significantly. However, the significant increase and decrease has remained equal in efficiency ratios during the post-acquisition period. In conclusion, the merger and acquisition has improved the overall financial performance. However, profitability and cash flow significantly increased, and leverage and liquidity ratios significantly declined.

AN IMPACT OF MERGERS AND ACQUISITIONS (M&amp;A) TO ACHIEVE INEXPENSIVE ADVANTAGE IN THE ECONOMY OF BAHRAIN

The persistence of this paper is to assess the impact of Merger and Acquisition on the economy of Bahrain. The experiential research methodology is built on quantitative method by using online questionnaire and expressive statistics using the weighted average mean. The performance of an acquisition is measured by questionnaire distributed using selective sample technique to Head of Departments and executive management. The acquisitions were divided into three domains: Motives, Post-acquisition management and critical factors affecting the economy of Bahrain. The result of this research associates that the so-called planned and structural fit between companies complicated in M&A play an important role in refining the operative performance of the developed companies in the post-acquisition period. Effective acquirers have potential performance on the economy of the country, but they also had some skills and competencies to recover the performance of an acquired firm. The results of our study advocate the conclusion that success acquisition and mergers will lead to robust economy, particularly with regard to convinced aptitudes and skills worldwide.

Operating performance of acquirers after acquisition: evidence from India

Purpose The purpose of this paper is to examine the operating performance of Indian using difference-in-difference (DD) methodology. It, further, examines whether there is a difference in the operating performance of acquirers doing partial and full acquisitions. Design/methodology/approach Four different benchmark criteria are used to select control firms, namely, size, size and industry, size and leverage, and size and book-to-market ratio. To measure the operating performance, return on assets (ROA) is calculated as the ratio between earnings before depreciation, interest, tax and amortization (EBDITA) and total assets (TA), expressed in percentage. This paper examines the ROA of event and control firms for three years in each pre- and post-acquisition period and finally compares them using the DD method. Findings Using a sample of Indian acquirers, the results show that the operating performance of Indian acquirers neither improves nor deteriorates after accounting for an appropriate benchmark. Operating performance of event firms significantly reduces in the post-acquisition period. However, non-acquiring firms of similar size and pre-operating performance also exhibit similar results. Finally results show that, the operating performance of acquirers making full acquisitions deteriorates. Originality/value It provides insights into the operating performance of Indian acquirers with an improved methodology, which accounts for the performance of control firms. The author also uses multiple matching criteria to find control firms to overcome the possible bias of the results dependent on the matching criteria. To the best of the author’s knowledge, the author could not find other studies comparing the operating performance of acquirers making partial and full acquisitions.