Value Creation Through Mergers and Acquisitions: Empirical Evidence from Acquirers in a Nordic Context

Martin Andersen & Rasmus Davidsen Rejnhardt

Student thesis: Master thesis


In this thesis, we investigate whether acquiring companies within Denmark, Finland, Norway and Sweden create short-term shareholder value when announcing acquisitions. Firstly, we discuss what value creation is and how it should be measured. After comparing a multitude of income and value metrics, we conclude that abnormal returns are the relevant definition and measure. We next identify and test a series of deal, company and other economic drivers behind value creation. The seven drivers we investigate are: 1) the effects from companies with high cash flows; 2) acquisitions within merger waves; 3) the effect from previous multiple acquisitions within a short time span; 4) effects from the use of financial advisers; 5) cross-border acquisitions; 6) the effect from payment methods; and 7) strategic rationales and motives behind acquisitions. We compile a unique dataset from several reputable data sources using a strict sampling procedure, resulting in a final sample of 627 acquisition announcements from 1995 to the beginning of 2018. The sample is analysed using two methods. Firstly, we use an event study as our primary method. In the event study, we observe and make corrections in the data to address problems related to e.g. thin trading and clustering. Namely, we employ trade-to-trade returns and introduce multiple test statistics. Secondly, we use regression analysis to check robustness and further analyse the aforementioned drivers. Conclusively, we present significant evidence that Nordic acquirers create short-term shareholder value of 1.54% (cumulative average abnormal return in our main event period of interest). In relation to the drivers, we use our most significant results to present an M&A guideline, relevant for the industry and related professionals. In short, our results and interpretations suggest: 1) companies with excess cash and few investment opportunities to cautiously engage in acquisitions; 2) to generally employ financial advisers, but be selective in choosing between top-tier and non-top-tier advisers; 3) avoid equity settlement if bidder is highly valued; and 4) be cautious when announcing cost rationales, as these are negatively perceived by the market, and to further pursue diversifying acquisitions.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final ThesisMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2018
Number of pages127