The Impact of Merger and Acquisition on Value Creation: An Empirical Evidence

Abstract

The aim of this paper is to examine the impact of post merger and acquisitions on value creation. The paper also analyses the impact of lagged synergy (a proxy of sales growth) on the post merger and acquisition (M&A) performance of acquiring firms. The study employs System Generalised Method of Moment model (System GMM) to the panel dataset of 64 Indian firms from 2012 to 2018 to determine the synergy impacts and value creation post merger and acquisition (M&A). The outcome of the study signs that mergers create positive value for post merger acquiring firms, and lagged synergy influences future synergies positively. The lagged dependent variable synergy (p-value is 0.000) shows a significant positive effect on dependent variable synergy, which indicates that previous year sales of the firm have a positive effect on future year sales. If the acquisition of firm post merger and acquisition (M&A) effectively absorbs acquired firm resources and digests nutrition from those resources, then the value can be created, and synergy can be achieved, or at least not damaged. Corporate managers, policy makers and regulators can lure significant conclusions from the outcomes of the study. This study for managers concludes that a strong view of possible synergies that can be accomplished through mergers, timelines and processes to achieve them, all of which will aid in the post merger integration process. This knowledge and understanding also helps to optimise the effect of lagged synergies. The results have also important consequences for academics and give impetus to further research. Future research can be undertaken by comprising premiums paid, cross borders mergers, hostile or friendly mergers that may shed some supplementary insights. This paper contributes to value addition in the literature of post M&A as it analyses value creation and effect of lagged synergy in terms of sales. There are limited studies that observed the relationship of value creation and merger and acquisition (M&A), especially in the context of Indian sectors; moreover, this paper takes into consideration different sectors viz. Manufacturing, Mining, Electricity, Construction, Service and Real Estate which gives a holistic view of Indian sectors.

An Analysis of Synergy Effect from Acquisition in PT Hakaaston and Its Subsidiary

“…The added value for the company is the objective of M&A, which is achieved through market integration, risk diversification, and strategic management between subsidiary and holding companies through appropriate strategies (Gupta et al, 2021;Hossain, 2021). The same opinion is supported by previous researchers and is in line with the views of the research informants regaring the initial objectives of M&A.…”

“…Furthermore, M&A, as a form of investment, has an impact on the company's value and ownership structure (Cho, 1998). Synergy is the manifestation of a successful M&A, which can be achieved through the integration of market strengths between the subsidiary and holding company, risk diversification, and proper strategic management between the subsidiary and holding company in executing business operations, as mentioned by Gupta et al (2021) and Hossain (2021).…”

“…Synergy is a form of performance improvement for a company that arises from the implementation of a Merger & Acquisition (M&A). Hossain (2021), in his research on M&A literature, found that the performance thus creating value (Gupta et al, 2021).…”

How Does Tobin’s Q Respond to Merger and Acquisition Announcements: Evidence of Listed Indian Firms

“…However, only a handful of literature is available on the linkage of Mergers and Acquisitions (M&A) deals and Tobin's q in the context of emerging economies like India, China, Russia, Saudi Arabia, and Indonesia. Especially in the context of Indian sectors, a few research works have examined the relationship between Tobin's q and merger and acquisition (Gupta et al, 2021). Moreover, the present study is focused on Indian Financial service sector firms.…”

Assessment of the Network Interaction Synergistic Effect According to the Organization Life Cycle

“…In many studies (Andriuškevičius & Štreimikienė, 2021;Gupta, Mishra & Tripathy, 2021) economies of scale are seen as part of the synergistic effect. But such an effect can arise with any expansion of the scale of activity, regardless of whether the enterprise is a member of a business network or operates without participation in any association.…”