Value Destructive Consequences of Mergers & Acquisitions During Times of Low Interest Rates: An Empirical Study of M&A Transactions in Europe Between 2009 and 2015

Abstract

The prevailing low interest rate environment in the EU, in combination with booming stock markets, lured one of Germany’s highest valued corporations (Bayer AG) to make the largest takeover bid in the history of German companies. This thesis uses such a novel macroeconomic environment in an effort to push forward the research in the field of M&A and its potential on value creation. In detail, this unique macroeconomic environment allows to extract the impact of interest rates on value creation through M&A. The total sample consists of 2,140 transactions, executed by companies headquartered in the EU, from the time periods between 2009-2015 and 2003-2007. The carried out event study indicates that transactions performed during a low interest rate environment yield negative abnormal returns to acquirers’ shareholders. In a low interest rate environment the subsequent characteristics significantly impact shareholder value negatively: (i) deal value of more than €500m, (ii) deal value larger than 10% of acquirer’s market cap / asset value, and (iii) equity financed acquisitions. In contrast, cash financed acquisitions seem to positively impact the potential of value creation through M&A during low interest rates. Moreover, this thesis confirms that M&A during times of low interest rates destroy significantly more value than during times of normal interest rates. The following characteristics have proven to lead to lower returns in times of low interest rates relative to normal interest rates: (i) synergy seeking acquisitions, (ii) deal value of more than €500m, and (iii) cash financed acquisitions.