Value Creation In Acquisitions Research Articles

Understanding Value Creation in Acquisitions: A Fuzzy-Set Configurational Approach

Understanding Value Creation in Acquisitions: A Fuzzy-Set Configurational Approach

The sources of value creation in acquisitions of intangible assets

We document that acquirer announcement returns and post-M&A performance rise with a target's proportion of intangible assets. This shareholder wealth creation is associated with profitable acquirers purchasing complementary intangible assets and promising growth options from less profitable targets. Purchase prices are lower when targets face financial constraints limiting their ability to pursue promising investment opportunities. Analyzing acquisitions across different classes of intangible assets and matching successful with failed bids for targets with intangible assets support our main findings and suggest that these results are robust to endogeneity concerns. We conclude that target intangible assets provide important sources of M&A value creation.

Acquired middle managers’ strategy roles and value creation in cross-border acquisitions

Middle managers (MMs) are important organisational players. In intra-organisational settings, their enactment of strategy roles has been linked to value creation. In this paper, we study this question in the context of acquisitions. An acquisition removes the acquired MMs' upward links towards top management and introduces new players (i.e., acquiring MMs) who influence their work. This paper explores whether acquired MMs are able to enact their strategy roles in the post-acquisition era, and if so, how this contributes to acquired-unit value creation. Adopting an actor-based, mixed-methods research design studying cross-border acquisitions, our findings contribute to the debate on managerial roles and acquisition value creation. We found that value-creating transactions are represented by acquired MMs' enactment of the strategy roles of implementing and championing, while value-declining transactions are represented by acquired MMs' enactment of the synthesising role. Notwithstanding, the relationship between acquired-firm value creation and acquired MMs' strategy role enactment is contingent upon acquired and acquiring MMs' relationships. Going forward, we call for more research on managers’ effects on acquisition value creation.

Understanding Value Creation in Acquisitions: A Fuzzy-set Configurational Approach

Extant work has predominantly investigated how acquisitions create value by focusing on the isolated effects of individual determinants. We propose that this approach needs to be complemented with a configurational one that captures the multi-dimensional fit among these factors, thus lending itself to a more accurate depiction of the mechanisms through which acquisitions create—and fail to create—value. Using fuzzy-set qualitative comparative analysis (fsQCA), we draw on a fine-grained dataset of 101 acquisitions to examine the fit among three sets of factors that cover the essence of the existing acquisition literature: pre-deal characteristics, the acquirer’s acquisition capabilities, and post-acquisition decisions. Our findings highlight different configurations leading to value creation and failure thereof, together with novel insights regarding the multi-dimensional fit between the underlying factors.

Value Creation in Acquisitions Through the Looking Glass of IT: Examining the Effects of IT Distance on Acquisition Performance

Although researchers have examined the role of dyadic dynamics (i.e., interactions between the acquirer and the target firm) in the success of acquisitions, little research attention has been paid to the role of information technology (IT). In this study, we extend this stream of literature by examining the effects of pre-acquisition IT distance (i.e., the difference between enterprise IT systems of the two firms that reflects system incompatibility and affects the cost of system integration) on the acquirer’s post-acquisition performance. To measure IT distance, we adopt a word embedding technique to map each firm’s IT portfolio to a low-dimensional embedding space and calculate the distance between IT vendors in that space. Using data on U.S. firms’ acquisition activities during 2007-2013, we find that IT distance is negatively associated with the acquirer’s post-acquisition performance. Also, the adverse effect of IT distance is stronger for acquisitions motivated by operational synergies, compared to those seeking non-operational synergies. This supports our theory that IT distance disrupts post-acquisition synergy creation, and more so when the combined firm has a greater need for tight integration to create acquisition synergies. This research contributes to the M&A literature in management and IS by introducing a novel concept of IT distance and by theorizing and empirically validating its performance implications in acquisitions. The findings of this study can inform practitioners about how to devise IT strategies in corporate acquisitions in order to mitigate IT risks and achieve greater post-acquisition performance.

Impression Offsetting as an Early Warning of CEO Pessimism on Acquisition-Value Creation

A long history of research has been interested in developing a better understanding of the motives behind CEOs’ actions. On the one hand, CEOs may pursue strategic initiatives because they believe ...

Maytag: Takeover Strategies

On April 22, 2005, Maytag Corporation's stock price fell 28 percent after the company reported disappointing first-quarter results and significantly reduced its earnings outlook for 2005. The company's sales were declining due to increased foreign competition and its production costs were increasing due to higher energy, materials, and distribution costs. Maytag's management and board clearly understood the need to make strategic decisions to turn around the fate of their company. Maytag could propose a drastic turnaround plan and remain independent, sell itself to either a large domestic competitor such as Whirlpool or a foreign firm such as Haier, or it could choose to go private by selling to a financial buyer (Ripplewood).This case is designed to introduce and to practice concepts relating to the valuation of an acquisition target from the perspectives of a strategic investor and a private equity (leveraged buyout) firm. More specifically, the exercise is intended to address: (1) corporate strategy relating to takeover contests, (2) sources of value creation in acquisitions, and (3) valuation methodologies used to determine target company values.

How Industry Lifecycle Sets Boundary Conditions for M&A Integration

Value creation in acquisitions is tightly connected with actions taken during integration. However, research on integration mainly concentrates on integration typologies or on the autonomy vs. absorption debate, each stream with empirical evidence for respective benefits. We argue and give empirical evidence that there is no “one size fits all” approach for integration but rather an interdependency of the suitability of integration related decisions with the industry lifecycle. We demonstrate that beneficial or detrimental effects of degree of integration, formal, and informal coordination mechanisms are context-specific and differ significantly in growing, mature, and declining industries. We show that the degree of integration only has a significant beneficial effect in mature industries, while no effect in cases of declining and fast growing industries is observable. Here we indicate that in acquisitions with buyers in declining industries, formal coordination mechanisms are most beneficial, while in growing industries only informal coordination mechanisms are valuable.

Examining Links between Pre and Post M&A Value Creation Mechanisms — Exploitation, Exploration and Ambidexterity in Central European SMEs

Value creation in acquisitions is a complex topic with divergent theoretical roots and mixed empirical evidence. In empirical research, the study of strategic fit between an acquirer and target as an important indicator of synergy often yields ambiguous findings, for two major reasons: the conceptualization of the fit construct and that construct’s missing link with issues of post-merger integration. In this paper, we apply exploration and exploitation as different concepts of learning to conceptualize the strategic fit among organizations involved. We do not draw a direct relationship regarding MA second, a synergistic effect exists between exploration and exploitation; third, ambidextrous post-merger development in exploration and exploitation negatively affects MA and fourth, acquisition experience benefits the transfer of pre-merger strategic fit to the success of post-merger activity. Based on those findings, we derive implications for theory and practice.

Rule of law or country level corporate governance: What matters more in emerging market acquisitions?

A study of post-acquisition performance of cross border acquisitions involving emerging market firms shows that when developed market firms acquire emerging market firms, rule of law in the target country has a significant favorable impact on post-acquisition performance; while country level corporate governance has no impact. Contrarily, when emerging market firms acquire developed market firms, country level corporate governance in the target country has a significant adverse impact on post-acquisition performance, while rule of law has no impact. We provide evidence that if rule of law in the emerging market target country is less evolved but not dismally low, the developed market acquirer can seize the opportunity to enforce better discipline at the firm level in the target firm and thereby enhance post-acquisition performance. However, in the case of emerging market firms’ acquisitions, lower the difference in country level corporate governance, superior gains are assured. The study provides evidence that location level factors affect post acquisition performance differently for ADTE and AETD acquisitions and ADTE acquisitions give importance to rule of law, while AETD acquisitions emphasis on corporate governance factors to ensure value creation in acquisitions and the results are robust after controlling for country effects and year effects.

Firm size, sovereign governance, and value creation: Evidence from the acquirer size effect

This paper examines the relationship between acquirer size, sovereign governance, and value-creation in acquisitions. Prior literature indicates that larger acquirers' acquisitions create less shareholder wealth in developed markets, arising primarily from agency and entrenchment problems. However, in weak governance environments, size might have off-setting benefits, including increased market power and political connections. We use a sample of 17,647 takeovers from 45 countries to examine the acquirer size effect around the world. We find that the acquirer size effect exists internationally, but is smaller in magnitude in weak governance markets. Compared with larger acquirers in strong governance countries, large acquirers in weak governance countries do takeovers that generate higher stock-returns and increase post-takeover operating performance. Their deals are also more likely to be friendly, and take less time to complete. We also find that the benefits of larger acquirer size increase with the importance of political connections in the acquirer's country. The results suggest that country-governance can moderate the impact of corporate characteristics, such as corporate size.

Sources of value creation in acquisitions: An empirical investigation

AbstractThis study provides a conceptual framework and an empirical methodology to assess the relative importance of different sources of value creation in acquisitions. The empirical results indicate that value creation in related acquisitions is associated with economic efficiencies hypothesized to arise both from economies of scale and scope and from operating efficiencies, and with market power. In unrelated acquisition, where such efficiencies are not expected to be present, value creation occurs nevertheless and is associated with the coinsurance effect. Finally, it is shown that financial diversification effects do not play a role in value creation in either type of acquisition.

Value creation in acquisitions: A re‐examination of performance issues

AbstractThis study provides a conceptual framework and an empirical methodology to assess the extent of value creation in acquisitions. Arguments are presented to examine why related acquisitions might not outperform unrelated acquisitions on average. New measures of value creation are developed which resolve the difficulties with measures used by earlier researchers. In addition, the influence of the classification scheme used to identify acquisition types, and the impact of the relative size of the target to the bidder, on the measurement of the extent of value creation, is examined. The empirical results indicate that value is created in both unrelated and related acquisitions. Further, the data do not appear to indicate that related acquisitions create more value than unrelated acquisitions on average.