“Warren Buffett swallows Heinz: Sauce for the sage” – a typical takeover announcement was published lately on 14th February 2013. Warren Buffett, a well known inves tor, acquired along with the financial investor 3G Capital the H. J. Heinz Company for $ 28 billion. This is likely to become the largest transaction in the food industry. The company's stock price rose more than 20.0 percent after the publication which is a very characteristic reaction to deal announcements. Hence, the important question is, if transactions, such as the takeover of the H. J. Heinz Company, affect the corporate performance consistently.
In general, the core idea about mergers and acquisitions (M&A) is to generate additional future growth if for example organic growth is limited. If two companies merge or a target is bought by another company (the acquirer), shareholders believe in synergy effects. These are revenue enhancements, cost reductions, tax gains and reduced capital requirements leading to business growth and thus to a higher value of the new company. However, it is questionable if this theory can also be experienced in the real world.
Ever since the effects of M&A have been analysed, the market of the United States (US) was used as data source. This is plausible due to the fact that the very first information was well recorded for US companies. It is remarkable that literature contributes very little research on Europe, although the number of announced European transactions is comparable to those of the US. For example, in 2007 the European deals volume overtook the one from the United States of America (USA) for the first time. Moreover, research on single European countries almost never exists or only rarely. One exception is the United Kingdom (UK) with an early takeover history beginning in the 1960s. However, European countries should be analysed separately because of its high diversity regarding the accounting framework, the corporate governance or the legal and regulation structure. For instance, Germany is characterised by conservative accounting principles and a high regulation by the banking sector. These issues may also influence the M&A decision making process.
Table of Contents
1 Introduction
1.1 Problem and research question
1.2 Research design
1.3 Structure of the paper
2 Literature review
2.1 Market-based studies
2.2 Accounting-based studies
3 Transactions
3.1 Fundamentals of transactions
3.1.1 The M&A term and basic forms of transactions
3.1.2 The M&A process
3.1.3 Motives for M&A activities
3.2 Key drivers of M&A
3.2.1 Determinants by Datta, Pinches and Narayanan (1992)
3.2.2 Determinants by Hitt et al. (2012)
3.2.3 Further relevant drivers of M&A
3.2.4 The underlying determinants for the empirical study
3.3 Development of transaction markets
3.3.1 Reasons for M&A waves
3.3.2 Development of the global market of corporate control
3.3.3 The German transaction market
4 Methodologies
4.1 Market-based measurement
4.2 Accounting-based measurement
4.3 Strengths and weaknesses
5 Empirical investigation
5.1 Data sample and screening procedure
5.2 Hypotheses
6 Statistical analyses and results
6.1 Market-based approach: Short-term shareholder’s return
6.1.1 Robustness
6.1.2 Bidding versus target companies
6.1.3 Univariate regression analysis
6.1.4 Multivariate regression analysis
6.2 Accounting-based approach: Long-term operating performance
6.2.1 Robustness
6.2.2 Bidding versus target companies
6.2.3 Univariate regression analysis
6.2.4 Multivariate regression analysis
6.3 Overall statement
7 Limitations and future outlook
8 Summary and conclusion
Research Objectives and Key Themes
This master thesis aims to analyze the success of German mergers and acquisitions (M&A) by evaluating the impact of key determinants on corporate performance. Using a unique dataset of German transactions, the study seeks to determine whether M&A activities create wealth for shareholders and improve long-term firm operating performance.
- Comparison of market-based (short-term) and accounting-based (long-term) performance metrics.
- Identification of deal-specific characteristics such as payment method and acquisition type.
- Evaluation of the influence of external factors like macroeconomic conditions and industry sectors.
- Assessment of performance differences between bidding and target firms in the German market.
- Utilization of univariate and multivariate regression frameworks to test identified hypotheses.
Excerpt from the Book
3.1.1 The M&A term and basic forms of transactions
The expressions merger or acquisition originated from the US investment banking sector and summarise purchase or sale of companies, business units and participations. In a broader sense collaborations, such as joint-ventures, are also included. Since the 1980s M&A has also been used intensively in German scientific research.
Usually a merger is a business combination of two companies with roughly the same size. In case of an acquisition one company acquires another business, business unit or participation and integrates it into its existing entity. The buyer can either acquire the assets (asset-deal) or the shares (share-deal) of the target. The decision whether a company is sold or not is made by the shareholders and not by the management. That is why acquisitions can be differentiated by the type of offer. Depending on whether the transaction is made with agreement of the target firm’s management or not, it is a friendly or a hostile takeover.
In addition, usually investments are classified into three types: horizontal, vertical and conglomerate deals. Whereas in horizontal acquisitions both parties are from the same industry or the same step in the value chain, vertical acquisitions are realised in the up or downstream value-added stage. A conglomerate transaction assumes that neither the industry nor the step in the value chain matches.
In this study the expressions acquisition, merger, takeover, deals, investment or transaction are used as synonyms.
Summary of Chapters
1 Introduction: This chapter introduces the research context, outlines the problem statement regarding M&A performance in Germany, and defines the research design.
2 Literature review: This section summarizes existing academic research on M&A performance, contrasting market-based and accounting-based measurement studies.
3 Transactions: This chapter provides a theoretical background on M&A, including definitions, key drivers, and an overview of the development of global and German transaction markets.
4 Methodologies: This section details the empirical techniques used, specifically explaining market-based (event studies) and accounting-based performance metrics.
5 Empirical investigation: This chapter details the data collection, screening procedures, and the specific hypotheses tested in the study.
6 Statistical analyses and results: This section presents the quantitative findings of the research, including univariate and multivariate regression results for both short-term and long-term performance.
7 Limitations and future outlook: This chapter discusses data constraints and potential areas for future research.
8 Summary and conclusion: This final chapter synthesizes the main findings and provides a concluding statement on the profitability of German M&A activities.
Keywords
Mergers and acquisitions, M&A, Corporate performance, German market, Event study, Accounting-based measurement, Shareholder wealth, Operating performance, Regression analysis, Transaction drivers, Market efficiency, Synergy effects, Bid premiums, Financial reporting, Corporate control.
Frequently Asked Questions
What is the core focus of this master thesis?
The thesis examines the financial success of merger and acquisition activities specifically within the German market, using both market-based and accounting-based performance measurements.
What are the primary research themes addressed?
The research explores the impact of deal-specific characteristics (such as payment method, bid mood, and acquisition type) and external factors (macroeconomic conditions and industry sectors) on corporate performance.
What is the main research objective?
The primary goal is to determine if German M&A transactions lead to consistent wealth creation for shareholders and improved long-term operating performance for the involved companies.
Which methodologies are employed?
The study uses two main approaches: a short-term market-based event study to measure abnormal returns and an accounting-based analysis to evaluate long-term operating performance changes.
What does the main body of the work cover?
The main part of the work provides a literature review, a theoretical framework of transactions, an analysis of the development of the global and German transaction markets, detailed methodologies, and a statistical investigation of the defined hypotheses.
Which keywords define this work?
The work is defined by keywords such as M&A, corporate performance, event study, German market, shareholder wealth, and operating performance.
How is the German transaction market characterized in this study?
The German market is described as a relatively late developer in corporate control compared to the US or UK, but one that has professionalized and become an essential part of the German economy since the 1990s.
Does the study find M&A activities in Germany to be profitable?
The results suggest that while there are positive short-term market reactions, accounting-based evidence often points to a deterioration in long-term operating performance, implying that German M&A activities may not be profitable in the long run.
What role do industry sectors play in the findings?
Industry-specific differences are found to be a significant factor, with certain sectors showing higher abnormal returns and operating performance than others, which confirms the importance of controlling for these variables in M&A studies.
- Quote paper
- Malwina Woznik (Author), 2013, The Impact of Merger and Acquisition Activities on Corporate Performance Measured on an Accounting and Market Base, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/231303
