Customer concentration and M&A performance

This paper examines how the target's customer concentration affects merger performance. We find that the acquirer purchasing a customer-concentrated firm experiences significantly lower stock market returns and worse long-run operating performance. The effect is more pronounced when customers face lower switching costs or the target undertakes a higher level of relationship-specific investments, exhibits higher cash volatility, or is acquired by a less well-known company. Further analysis shows that the negative association is mainly driven by corporate customers, while relatively safe government customers moderate the effect. We also find that shared major customers, overconfident CEOs, and poor corporate governance are more likely to increase the likelihood of customer-concentrated acquisitions. Overall, our findings suggest that higher customer concentration leads to lower value creation in mergers.     

Industry policy,investor sentiment,and cross-industry capital flow: Evidence from Chinese listed companies’ cross-industry M&As

This study investigates how the government’s industry policies affect investor sentiment, and whether the influenced investor sentiment guides corporate capital flow in the real economy. By examining a sample of cross-industry mergers and acquisitions (M&As) of Chinese listed companies, we find that industry policies promulgated by the government have a significant asymmetric influence on investor sentiment. Furthermore, investor sentiment under the exogenous shock of industry policies has a significant real effect on companies’ cross-industry M&A behavior, generating cross-industry capital flow. Additional analyses reveal that this effect arises because the acquirer depends on equity financing and has incentive to cater to investor sentiment. Our findings help clarify the effect of public policies on the stock market, theoretically, from the company’s micro-level perspective, as well as the mechanism by which stock market volatility transmits to the real economy.     

HOW STOCK-SWAP MERGERS AFFECT SHAREHOLDER (AND BONDHOLDER) WEALTH: MORE EVIDENCE OF THE VALUE OF CORPORATE "FOCUS"

Alfred Chandler once described the U.S. conglomerate movement of the 1960s and '70s as an "historical aberration and a 'disaster." And the recent trend in corporate mergers and acquisitions away from "diversifying" acquisitions would seem to confirm Chandler's argument.
In what constitutes yet another piece of evidence in support of Chandler's argument, the authors of this article conducted a study of changes in debt and equity values in 260 stock-forstock mergers completed between 1963 and 1996. With a sample almost evenly divided between conglomerate and "related" mergers, the authors report significant net wealth gains for all securityholders as a group in "related" mergers, but generally insignificant net gains for securityholders in conglomerate mergers. Not surprisingly, target firm shareholders experienced net wealth gains in both kinds of acquisitions; but for acquiring company shareholders, there was a striking difference: economically and statistically significant gains for acquirers in related transactions, and significant losses for acquirers in conglomerate deals.
Perhaps the biggest surprise of the study, however, was that even the bondholders of acquirers in related mergers benefited more than bondholders in conglomerate deals. The result is surprising because, to the extent bondholders benefit from corporate diversification, one would expect the opposite result. That bondholders in related mergers experience larger wealth increases than those of conglomerate acquirers is just one more sign of the dramatic differences in total value created by the two kinds of mergers.     

Where M&A Pays and Where It Strays: A Survey of the Research

This article uses a large and growing body of academic studies to refute the popular notion that corporate mergers and acquisitions generally fail to increase productivity and end up reducing shareholder value. A careful review of the evidence starts by con. rming the obvious–namely, that the shareholders of selling firms earn large returns from M&A–and goes on to demonstrate an economic reality that is not widely understood: shareholders of acquirers generally earn about the required rate of return on investment, and hence M&A is at least a value-maintaining proposition.
Of greatest interest to corporate practitioners, however, is the very large dispersion of outcomes that underlies the average returns. Closer inspection of this variability shows that certain circumstances and company characteristics are reliably associated with value-increasing M&A. In particular, acquisitions of related companies tend to be better received by the market and to produce higher post-merger operating returns than diversifying transactions (though there are a number of successful instances of the latter). Other fairly reliable indicators of value-increasing M&A are transactions involving mergers of equals or smaller, private targets (where the bidding competition is less intense) and deals structured as earnouts and financed primarily with cash rather than stock.     

我国上市公司杠杆收购绩效研究

企业资源优化配置,实施并购重组是我国目前资本市场上的一大热点.杠杆收购由于其创新性的并购方式,强大的融资能力,成为近年来在我国并购市场上备受瞩目的商业手段.本文通过对我国上市公司发生的杠杆收购案例进行分析,进一步选用因子分析法对公司杠杆收购绩效进行量化分析,得出结论为：杠杆收购对短期的企业绩效有正向激励作用,但是对长期绩效积极影响不明显,企业总体绩效在杠杆收购第3年后下滑,同时归纳出我国目前杠杆收购融资模式主要集中于商业银行贷款、信托机构融资的方式,融资模式较为局限,现存资本市场条件及政策对杠杆收购绩效有所限制.     

Human due diligence

Most companies do a thorough job of financial due diligence when they acquire other companies. But all too often, deal makers simply ignore or underestimate the significance of people issues in mergers and acquisitions. The consequences are severe. Most obviously, there's a high degree of talent loss after a deal's announcement. To make matters worse, differences in decision-making styles lead to infighting; integration stalls; and productivity declines. The good news is that human due diligence can help companies avoid these problems. Done early enough, it helps acquirers decide whether to embrace or kill a deal and determine the price they are willing to pay. It also lays the groundwork for smooth integration. When acquirers have done their homework, they can uncover capability gaps, points of friction, and differences in decision making. Even more important, they can make the critical "people" decisions-who stays, who goes, who runs the combined business, what to do with the rank and file-at the time the deal is announced or shortly thereafter. Making such decisions within the first 30 days is critical to the success of a deal. Hostile situations clearly make things more difficult, but companies can and must still do a certain amount of human due diligence to reduce the inevitable fallout from the acquisition process and smooth the integration. This article details the steps involved in conducting human due diligence. The approach is structured around answering five basic questions: Who is the cultural acquirer? What kind of organization do you want? Will the two cultures mesh? Who are the people you most want to retain? And how will rank-and-file employees react to the deal? Unless an acquiring company has answered these questions to its satisfaction, the acquisition it is making will be very likely to end badly.     

期权激励与企业并购行为

本文以2006年至2015年我国上市公司为研究对象,考察了期权激励对企业并购行为的影响。研究发现:授予高管的期权激励显著提升了企业发起并购的可能性和并购规模。缓解代理问题和提升风险承担是潜在的作用渠道。进一步研究表明,激励对象异质性会影响期权激励的效果,期权激励对企业并购倾向和并购规模的提升作用在管理者年龄较高、管理者任期较长以及管理者相对薪酬水平较低的企业中更加明显。此外,期权激励对企业并购行为的影响在非国有企业中更加突出。最后,本文还发现期权激励提升了企业并购的财务业绩。本文的研究不仅丰富了有关期权激励效果方面的文献,而且对于理解企业并购行为具有一定的参考意义。     

Regroupements d'entreprises et IFRS: le cas de GlobeCom Corporation et Synthetics Inc.

This case addresses the accounting for mergers and acquisitions in Canada. Since January 1, 2011, any new transactions from mergers and acquisitions made by a public company must be recorded in accordance with the International Financial Reporting Standards (IFRS). In the case of a partial acquisitions, two theoretical approaches to accounting is allowed under IFRS 3: the approach of a separate entity and the modified approach of the parent entity. For mergers and acquisitions that occurred before this date, firms could either be early adopters to IFRS or firms could apply the Canadian standards that were allowed at the time of reunification. Under Canadian GAAP (CICA, Chap. 1581), partial acquisitions are accounted for using the approach of the parent entity. Canadian public companies that have chosen to recognize their business combinations which occurred before January 1, 2011, according to the approach of the parent entity, may continue to do so even after the enforcement of IFRS. Thus for years to come, we can see in the financial statements of various Canadian public companies business combinations presented in three different ways: according to the separate entity approach, the parent entity approach and, the modified approach of the parent entity. We also include in the case the U.S. GAAP for mergers and acquisitions. In this case, we strongly draw on an acquisition that actually happened, which we adapted to illustrate the three theoretical approaches to account for mergers and acquisitions. In particular, we have changed the name of the company.     

The hidden costs of being public: Evidence from multinational firms operating in an emerging market

I study how firms deal with business regulations that limit their operations. I first show that the ownership structure of a firm affects its degree of compliance with regulations, with publicly listed firms complying more than privately held ones. This differential compliance imposes a burden on listed firms that helps explain mergers and acquisitions patterns. When regulatory levels increase, private firms acquire listed ones and listed firms stop acquiring private ones. These results uncover an additional cost faced by listed companies, identify a new driver of M&A transactions, and show that high levels of regulation lead to opaque corporate structures.     

政府规制视角下企业海外并购问题研究

鉴于目前在海外并购活动中发达国家政府的规制体系相对健全,本文基于对发达国家企业海外并购的政府规制行为进行系统梳理,探讨了新形势下我国企业海外并购面临的机遇与挑战及应采取的政府规制措施.本文的主要结论是：在海外并购东道国政府不断加大国家安全审查力度、国际市场波动加剧及企业海外并购整合控制难度加大的背景下,促进我国企业海外并购应不断完善海外并购的法律法规体系、强化规制部门对海外并购的引导与协调、加大海外并购政策支持力度、加强海外并购中介服务机构建设.     

A CEO roundtable on making mergers succeed

The announcement in January of the merger between America Online and Time Warner marked the convergence of the two most important business trends of the last five years--the rise of the Internet and the resurgence of mergers and acquisitions. M&A activity is at a fever pitch, spurred in large part by the breathtaking influx of capital into the Internet space. And all signs indicate the trend will only accelerate. Against this background, an impressive group of experienced deal makers came together to share their experiences of what makes mergers work. They were assembled in Scottsdale, Arizona, under the auspices of the M&A Group, a professional society formed in 1999 for CEOs interested in M&A as a business strategy. Participants included top executives from Internet start-ups like Teligent; venture capital firms like Baroda Ventures; financial institutions like Merrill Lynch and PricewaterhouseCoopers; and major corporations like Allstate, Tyco International, SmithKline Beecham, Rohm and Haas, VF, Crown Cork & Seal, and Hughes Space and Communications. The spirited and surprisingly frank discussion cut a wide swath, considering issues such as whether most mergers fail to pan out as well as expected, how to increase the odds of success, the nuts and bolts of the integration process, the trade-offs between acquiring a company and growing from within, the importance of cultural issues, and why anyone would want to be on the board of a merged company.     

Not all M&As are alike--and that matters

Despite all that's been written about mergers and acquisitions, even the experts know surprisingly little about them. The author recently headed up a year-long study sponsored by Harvard Business School on the subject of M&A activity. In-depth findings will emerge over the next few years, but the research has already revealed some interesting results. Most intriguing is the notion that, although academics, consultants, and businesspeople lump M&As together, they represent very different strategic activities. Acquisitions occur for the following reasons: to deal with overcapacity through consolidation in mature industries; to roll up competitors in geographically fragmented industries; to extend into new products and markets; as a substitute for R&D; and to exploit eroding industry boundaries by inventing an industry. The different strategic intents present distinct integration challenges. For instance, if you acquire a company because your industry has excess capacity, you have to determine which plants to shut down and which people to let go. If, on the other hand, you buy a company because it has developed an important technology, your challenge is to keep the acquisition's best engineers from jumping ship. These scenarios require the acquiring company to engage in nearly opposite managerial behaviors. The author explores each type of M&A--its strategic intent and the integration challenges created by that intent. He underscores the importance of the acquiring company's assessment of the acquired group's culture. Depending on the type of M&A, approaches to the culture in place must vary, as will the level to which culture interferes with integration. He draws from the experiences of such companies as Cisco, Viacom, and BancOne to exemplify the different kinds of M&As.     

Shell games: On the value of shell companies

A reverse merger allows a private company to assume the current reporting status of another company that is public. This can be done quickly, without fundraising, road show, underwriter, substantial ownership dilution, or great expense. Private firms that go public via reverse merger are often motivated by the need to quickly secure financing through privately placed stock (PIPEs) and the desire to make acquisitions using stock as payment. In each of the last eight years reverse mergers have outnumbered traditional IPOs as a mechanism for going public, and reporting shell companies are providing fuel for much of this growth. We study 585 trading shell companies over the period 2006-2008. The purpose of most of these shell firms is to find a suitor for a reverse merger agreement. These companies have no systematic risk, operations, or assets, and their share price tends to decline over time. Yet, these firms have investors. When a takeover agreement is consummated, shell company three-month abnormal returns are 48.1%. We argue that this exceptional return is compensation to investors for shell stock illiquidity and the uncertainty of finding a reverse merger suitor. We show that shell company returns are much greater at the consummation of a merger than those of a similar entity that in dollar terms is more popular among investors — Special Purpose Acquisition Companies (SPACs).     

In Defense of Incentive Compensation: Its Effect on Corporate Acquisition Policy

Financial economists have long recognized that compensation design, particularly the use of equity-based compensation, can provide strong motivation for corporate managers to make value-maximizing decisions. But the perception of excesses in equity-based pay for U.S. executives has become pervasive and has led many to question its efficacy. The fundamental problem is one of measurement–while it is relatively easy to measure the cost of equity-based compensation, it is difficult to determine the extent to which equitybased compensation actually causes managers to direct corporate resources into value-maximizing ventures.
The authors of this article focus on corporate acquisition policy and argue that if equity-based pay is an effective motivator, it should limit management's inclination to overpay for acquisitions and to make unwise acquisitions. In their study of 1,719 mergers and tender offers over the period 1993–1998, the authors found that bidding companies with higher proportions of equity-based pay paid lower takeover premiums, acquired targets with stronger growth opportunities, and undertook acquisitions that were received more favorably by the market both upon announcement and over time.     

Is the M&A announcement effect different across Europe? More evidences from continental Europe and the UK

The United Kingdom (UK) and Continental Europe are two of the most dynamic markets for mergers and acquisitions in the world. Using a sample of 2823 European acquisitions announced between 2002 and 2010, we investigate the effect of M&A announcements on stock returns of acquiring companies located in Continental Europe and the UK. The analysis is based on characteristics of takeover transactions such as method of payment, listing status of the target company, geographic scope (cross-border vs. domestic), industry relatedness of the bidding and the target company, amongst other factors. We find that European bidders earn positive abnormal returns both in cross-border and domestic acquisitions, and there is a significant difference between the abnormal returns of stock and cash deals, and between acquisitions of listed and unlisted target companies. However, the cross-border wealth effects are not significantly different between the UK and Continental Europe. We find that bidding firm’s shareholders gain more in equity than in cash offers if they are located in the UK and if they acquire unlisted targets. Cash bids for listed targets are associated with higher abnormal returns for bidders located in Continental Europe. We do not find supportive evidence that industry diversification destroys value for shareholders of both Continental European and the UK bidders.     

The fine art of friendly acquisition

It's no secret that the track record of corporate acquirers has been dismal. But there is a group that's had consistent success. A recent study on M&A reveals that between 1984 and 1994, fund investors at some 80% of LBO firms enjoyed returns equal to or greater than their cost of capital on their M&A investments. And this was true even though in many cases the prices paid for the companies were pushed up by competing bidders. Why are financial acquirers so much more successful than their corporate counterparts? It's because they approach the negotiation process differently. Most corporate managers treat acquisitions as a direct-march-up-the-hill kind of exercise: "I want to buy this company. Let's find out what it's worth, offer less, and see if we get it." The actual deal management is delegated to outside experts--investment bankers and lawyers. But fund investors treat deal management as a core part of their business conducted by a permanent group of experienced executives, and they have well-established processes that they stick to. The authors examine how the best acquirers approach all five stages of deal negotiations--screening potential deals, reaching initial agreement, conducting due diligence, setting final terms, and reaching closure--comparing good practice with bad, to reveal the secrets of their success.     

Building deals on bedrock

The headlines are filled with the sorry tales of companies like Vivendi and AOL Time Warner that tried to use mergers and acquisitions to grow big fast or transform fundamentally weak business models. But, drawing on extensive data and experience, the authors conclude that major deals make sense in only two circumstances: when they reinforce a company's existing basis of competition or when they help a company make the shift, as the industry's competitive base changes. In most stable industries, the authors contend, only one basis--superior cost position, brand power, consumer loyalty, real-asset advantage, or government protection--leads to industry leadership, and companies should do only those deals that bolster a strategy to capitalize on that competitive base. That's what Kellogg did when it acquired Keebler. Rather than bow to price pressures from lesser players, Kellogg sought to strengthen its existing basis of competition--its brand--through Keebler's innovative distribution system. A company coping with a changing industry should embark on a series of acquisitions (most likely coupled with divestitures) aimed at moving the firm to the new competitive basis. That's what Comcast did when changes in government regulations fundamentally altered the broadcast industry. In such cases, speed is essential, the investments required are huge, and half-measures can be worse than nothing at all. Still, the research shows, successful acquirers are not those that try to swallow a single, large, supposedly transformative deal but those that go to the M&A table often and take small bites. Deals can fuel growth--as long as they're anchored in the fundamental way money is made in your industry. Fail to understand that and no amount of integration planning will keep you and your shareholders from bearing the high cost of your mistakes.     

50+ Years of Diversification Announcements

This paper studies announcement returns from 4,764 mergers over 57 years to shed light on several controversies concerning corporate diversification. One prominent view is that diversification destroys value because of agency problems or internal investment distortions, but we find that combined (acquirer plus target) announcement returns are significantly positive for diversifying mergers throughout the period, and no lower than the returns for related mergers. The returns from diversifying acquisitions fell after 1980, and investors rewarded mergers involving financially constrained firms before but not after 1980, consistent with the idea that the value of internal capital markets declined over time.     

并购下半场

并购风起云涌,并购整合成"战后之战"。7月23日,中海油宣布以151亿美元收购加拿大尼克森公司,若最终完成,该笔交易将成为中国最大金额的海外收购案,也必将在央企海外并购的业绩中写下浓重一笔。自上世纪末中国正式提出"走出去"战略以来,十余年间,央企在中国海外并购市场上一直扮演着中坚力量的角色,尤其是实力强劲的"三桶油"和矿产企业,频频在海外并购市场上出手,刮起了一股海外并购的中国风。除央企和"准国家队"国资企业(除央企之外的国有全资、控股和参股企业)外,民营企业作为中国经济     

Stealth Acquisitions and Product Market Competition

We examine whether and how firms structure their merger and acquisition deals to avoid antitrust scrutiny. There are approximately 40% more mergers and acquisitions (M&As) than expected just below deal value thresholds that trigger antitrust review. These “stealth acquisitions” tend to involve financial and governance contract terms that afford greater scope for negotiating and assigning lower deal values. We also show that the equity values, gross margins, and product prices of acquiring firms and their competitors increase following such acquisitions. Our results suggest that acquirers manipulate M&As to avoid antitrust scrutiny, thereby benefiting their own shareholders but potentially harming other corporate stakeholders.