Impact of Related Acquisition Strategy on Bidding Company Performance

Abstract

Strategy researchers believe that the better the strategic fit or relatedness between the bidding and acquired firms, the greater should be the economic gain from the merger. Although merger performance has been widely researched we recognized that empirical results on merger performance are inconclusive and that there are research gaps related to geographical settings, time frame and methodological approach. Thus, the research question examined in our study was to find out if acquisition strategy or relatedness of merging companies increases performance of the bidding company. Also we considered moderating effect of premerger bidder profitability on the performance of the merger. Our study predicts that relatedness between merging companies has a positive impact on the merger's performance. Results of 49 mergers completed in 2008 in EU member countries and Switzerland show that related mergers have better merger scores than unrelated mergers. We also predict that the impact of the related acquisition strategy becomes more positive as bidder premerger performance decreases.

The role of Portuguese companies in the development of corporate strategies: case study

“…Merger and Acquisitions (M&A) can be defined as "strategically planned transactions in which the target company and the bidding company jointly create a new entity to gain competitive advantage in the market place" (Koričan et al, 2014:32). As it suggests, M&A strategy comprehends not only the simple combination of two or more companies into a single corporate entity-the merger-but also the effective purchase of organizational assets and shares-the acquisition (Koričan et al, 2014). In these terms, negotiation is typically pleasant since there is a common desire to all intervenient (Finlay, 2000).…”

“…Throughout several years, researchers believed M&A strategies constituted a significant engine of strategic growth and also main source of diversification. Authors commonly found the improvement of organizational performance as a main motivation to engage a M&A strategy (Lubatkin, 1983;Koričan et al 2014). New sets of resources, often associated with synergies, led to organizational restructures, which helped companies to face environmental changes.…”

Capital markets and performance of strategic corporate M&A – an investigation of value drivers

“…Despite this remarkable growth in value and transaction activity, the empirical research provides almost no evidence on strategic transactions – the existing academic studies analyze M&A performance without differentiating between the rationales for the deal. Recent most influential empirical studies focused on the analysis of the transaction in the fifth merger wave (e.g., Martynova and Renneboog, 2011; Alexandris et al , 2012, 2010; Dutta et al , 2013; Koričan et al , 2014). It was particularly characterized through international expansion and motivated by overvaluation of the acquirers and management overconfidence.…”

“…I also examine the differences in national and international transactions. In comparison to national acquisitions, which are mostly associated with assets growth or responses to industry shocks (e.g., Keil and Laamanen, 2011; Koričan et al , 2014), international transactions are expected to create new business opportunities and are generally considered to be a strategic move (Danbolt and Maciver, 2012; Francis et al , 2008). I investigate whether and to what extend the international diversification influences the anticipated profitability of transaction.…”