Short-term Value Creation in Healthcare Mergers and Acquisitions: An Event Study Analysis

Abstract

In an era of rapid technological advancement and increasing competitive pressures, healthcare firms continuously seek strategies to adapt, innovate, and expand their market presence. M&A serves as a pivotal corporate strategy for achieving these objectives. This thesis investigates the degree of short-term value creation resulting from M&A announcements within the healthcare sector across Denmark, Sweden, the UK, Germany, France, and Switzerland. A sample of 871 M&A deals has been analyzed over a decade from 2014 to 2024, providing a comprehensive and contemporary examination of market reactions and value creation. An event study methodology is used to measure the stock market's response to M&A announcements, observing short-term value creation on the announcement date and surrounding days, with statistical evidence provided by both parametric and non-parametric tests. The results indicate that M&A announcements lead to statistically significant positive short-term abnormal returns, suggesting that the market perceives these transactions as value- creating. However, broader examinations around the announcement day show negligible effects of M&A announcements, with statistically insignificant cumulative abnormal returns, supporting the EMH. This suggests that initial market optimism is not sustained over time. Significant variations are observed across different event windows, countries, and transaction types. Specifically, the results show that Sweden, Germany, and Switzerland exhibit statistically significant positive impacts, implying that specific market or regulatory conditions in these countries may favor such outcomes. The thesis identifies potential value drivers through a cross-sectional regression analysis. The results indicate that transactions within the selected countries show a statistically significant positive impact on the degree of value creation, whereas cross-border transactions show statistical insignificance, not influencing short-term value creation. Additionally, utilizing different indices as estimators of normal performance did not impact the findings. Lastly, this thesis discusses the causes and implications of the findings, uncovering underlying reasons for the observed short-term value creation and comparing these results with existing literature, long-term effects and the EMH. The discussion highlights that pursuing M&A in the healthcare sector can be justified by the positive market reaction observed. In conclusion, while M&A announcements in the healthcare sector generate positive short-term returns, the extent and sustainability of this value creation vary significantly by region and transaction type.