Risikostyring i M&A-transaktioner

Laura Amtkjær Hansborg

Student thesis: Master thesis

Abstract

Mergers and Acquisitions (M&As) are high-risk investments which potentially can lead to yield high returns. However, research shows that at least 50 percent of all M&As do not realise the expected synergies and the following high return. Shareholders’ yields are based on the performance of the acquisition and returns to buyers’ shareholders are only obtained if the synergies outweigh the paid premium for the target. Therefore, the purchase price for the target is the main point of discussion between the seller and buyer. The high failure rate indicates that M&A practitioners underestimate the importance of risk management in M&A-decisions. Therefore, the purpose of this thesis is to investigate risk management tools that can be used in private M&A transactions to effectively manage and reduce buyer’s and seller’s risks, which in turn can improve the probability of a successful transaction. The thesis finds that risks occur due to asymmetric information and opportunistic behaviour, which leads to a conflict of interest. An important task in risk management is thus to improve and overcome the uncertain information and align participants’ incentives to ensure realisation of synergies. The buyer’s due diligence determines risks related to the acquisition, and findings from the investigation can be covered by guarantees made by the seller in the form of warranties, declarations, and representations. Nevertheless, the buyer cannot identify all risks related to the acquisition of why this thesis recommends that the seller’s guarantee is complemented by contractual mechanisms. The thesis finds that the choice of payment methods in M&A deals is guided by the aim of mitigating the buyer’s valuation risk. The thesis recommends that the purchase price is paid in shares if the acquisition involves a high degree of asymmetric information and uncertainty related to the target’s performance. Another risk sharing payment method is an earnout-mechanism where a part of the purchase price is only paid to the target if the predetermined performance measure in the target company is achieved after the earnout-period. The choice of payment method can ensure the seller’s incentives as the seller’s purchase price for the target depends on the realisation of the synergies after closing, which minimises the buyer’s risk of overpayment. The thesis concludes that the choice between risk management tools depend on the parties’ negotiation strengths, the risks associated with the transaction, how the risks are allocated between the parties, and which economic incentives are addressed to the target company

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2020
Number of pages87