Value Creation through M&A in Europe

Abstract

This thesis investigates the short-term value creation for the shareholders of the acquiring companies at the time of the announcement of Merger and Acquisitions (M&A) in Europe between 2002-2021. M&A has gradually become a popular expanding strategy. While M&A is a common used expansion in Europe, the majority of the literature is based on United States data. This thesis expand on the empirical evidence for the European region based on a large sample size over a long period. This thesis contributes to the existing literature by examining and quantifying the effect of a number of variables and financial indicators on the value creation. By applying the event study methodology, we conducted a thorough empirical analysis of 6.879 acquisitions, focusing on publicly listed acquiring companies within the European region. Based on the neoclassical framework, the value creation is measured through an estimation of the cumulative abnormal return (CAR) using stock returns measured around the announcement date as is prevalent in previous quantitative studies. Additionally, parametric- and non-parametric tests are applied to test the statistical significance of the abnormal returns, and a multiple linear regression is conducted to further examine which factors affect CAR. Conclusively, statistically significant evidence was found that the acquiring companies achieve short-term abnormal value creation for their shareholders. Through our main event period, the analysis showed a statistically significant cumulative average abnormal return of 1,75% upon the announcement of an acquisition. Specifically, the methods applied suggest significant results for numerous parameters. Hence, further results suggest: 1) Acquire targets within the same country, was found to generate higher abnormal returns, 2) The abnormal return is insignificantly higher when using stocks as a payment method, 3) General apply financial advisors, but evidence suggests top tier financial advisors generate less short-term value creation than using no advisors, 4) Small acquiring companies, measured using relative market cap, generate higher abnormal returns compared to larger acquiring companies, 5) The relative size between the value of the acquisition to the value of the acquiring firm has an amplifying effect on the abnormal returns, 6) Companies with a Q-score over 1 achieves a significantly higher CAR when performing acquisitions, and 7) Pursue diversifying acquisitions as these generate higher short-term value creation than both horizontal- and vertical acquisitions.