M&A Rationales and Their Effect on Value Creation: An Empirical Study on the Nordic Stock Market Between 1998-2018

Abstrakt

The purpose of this paper is to contribute to prior literature examining whether mergers and acquisitions (M&A) create value and if some deal types create relatively larger value for both acquiring and target shareholders. This study does that by investigating how the acquirer’s rationale for entering a M&A deal affect value creation for acquiring and target firms. Further, we asses which factors that are important in explaining value creation within and across different acquisition types. The different deal types are categorized by the acquirer’s rationale for entering a deal, which can be distinguished by capturing growth, consolidation, complementary assets and products, economies of scale, and financial related synergies. The data consists of 218 and 214 M&A deals in the Nordics between 1998 and 2018 for the acquirer and target sample, respectively. Firstly, to examine if the acquirer’s rationale for entering a M&A transaction impact firm value, we apply the event study methodology to evaluate the significance of announcement period average cumulative abnormal returns and differences in across the five deal types. Secondly, in order to understand which factors are important in explaining the within and across the different deal types, we conduct a cross-sectional regression using the payment method (cash or stock/mix), deal geography (cross-border or domestic), earnings multiple paid by the acquirer (EV/EBITDA), deal size (targets enterprise value) and deal direction (vertical or horizontal) as explanatory variables. The results of this study are summarized as following: (1) M&A create significant value for acquiring shareholders in growth, economies of scale and consolidation deals. (2) Differences in between deal types are not significant indicating that M&A rationale do not impact value creation for acquiring firms. (3) M&A create significant value for target shareholders across all deal types. (4) Target shareholders in growth deals experience a significantly larger than in other deal types. Consolidation and financially motivated deals create significantly larger for the target firm than deals motivated by complementary assets and products. The results suggest that acquirers M&A rationale have a significant impact on value creation for target firms. (5) The explanatory variables differ significantly in their impact of value creation for both acquiring and targets across the different M&A deals.