Can Old Methods Create New Value? An Event Study of Conglomeration in the American High-tech Industry

Riley Wellington Kack

Student thesis: Master thesis

Abstract

This thesis aims to determine the current state of conglomeration by studying Mergers & Acquisitions (M&A) announcement activity in the high-tech sector of the economy in the United States of America (USA). The current state of conglomeration is determined by investigating trends of conglomeration in the high-tech industry, and calculating the short-term value-creating ability of both single-industry and conglomerate transactions, by analyzing the abnormal returns (ARs) of the acquiring firms’ stock around the announcement date (±20-day event window). The value-creating ability for each sample group is determined by conducting an event study of 771 M&A announcements in the high-tech industry in the period January 1, 1997, to December 31, 2019. Through investigating trends of conglomeration in the high-tech industry, it was discovered that the proportion of conglomerate to single-industry transactions has increased from the period (1997-2008) to (2009-2019), which is consistent with theoretical predictions that the high-tech industry can structurally support, and is prone to conglomeration. However, when conglomerate transactions are separated into private and public-target samples, there are no distinguishable trends in conglomerate M&A’s preferred target type. The event study concluded that conglomerate M&A only creates value over the shortest-length event window is employed (±5 days) and does not create value over longer-event windows (±10, ±15,±20-days). Additionally, when separated into private and public-target samples, it is concluded that private target-transactions create more (destroys less) value than public-target transactions. However, neither sample creates value (positive CAARs) at a statistically significant level. Furthermore, this thesis has concluded that neither conglomerate nor single-industry transactions create short-term value for the acquiring firm at a statistically significant level. Furthermore, it has been concluded that conglomerate transactions create more (destroy less) value than single-industry transactions through the full-length event window (±20-days). Hence, it has been determined that conglomerate high-tech M&A out-performs single-industry M&A through the event window.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2020
Number of pages100