Enhanced value creation in acquisitions during a crisis: An empirical study of the European deals in 2008-2010

Thu Dieu Thi Pham

Student thesis: Master thesis


Value creation from acquisitions remains a controversial issue, which has been researched from numerous aspects. The main focus of this thesis is on the context-specific aspect to study whether value creation to acquirers depends on the economic environment. The recent financial crisis of 2008 – 2010 provides an interesting period of time to research as it has had substantial impact on acquisition activities. The period before the crisis was characterized by an optimistic view that there was no limit to companies’ growth, and this fostered continuously augmenting stock prices and a large number of deals. At the height of the financial crisis, however, M&A activity had been reduced by 70%. The pre-crisis and crisis period thus offered considerably different environments for companies to acquire. I employ the event study methodology and from a sample of 149 transactions I find that companies who acquire during the crisis on average receive higher abnormal returns than acquirers in the pre-crisis period. Various strategic and financial characteristics of acquisitions are found to affect the size and direction of abnormal returns. The prevalence and relative importance of these characteristics have shifted during the crisis and are thereby the underlying cause for higher abnormal returns to acquirers. Acquirers encompassing one or several of these characteristics have thus been able to create significantly more value than had been the case, if they had acquired prior to the crisis. For the strategic characteristics I find that acquirers receive higher abnormal returns when they are motivated by synergy realization, have performed well prior to the acquisition or are pursuing opportunities in distressed cyclical industries. For the financial characteristics I find that a low price paid by the acquirer, financing the deal by debt or a sensible capital structure with low debt significantly influence value creation. The outcome of this thesis thus sheds light on certain strategic and financial considerations of acquiring companies under the condition of different economic contexts. Moreover, it provides insights on the extent of value creation to be expected when engaging in acquisitions during a crisis. However, research encompassing alternative methods of value measurement is needed in order to strengthen the validity of the results given in this thesis and provide further evidence and perspectives on the subject.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2011
Number of pages102