The Measurement of Post Deal Performance. An Empirical Analysis of European M&A Transactions (PDF)

Bachelor Thesis from the year 2018 in the subject Business economics - Investment and Finance, grade: 1,3, LMU Munich (Institut für Rechnungswesen und Wirtschaftsprüfung), language: English, abstract: There are several studies that showed that on average 50% of all M&A deals lead to a failure. There are some explanations for the high rate of failures in empirical research, e.g. hubris which is the overconfidence of the management as first mentioned by Roll or managerialism. Still M&A transactions take place frequently and shareholders do not prohibit them. Cartwright & Schoenberg suggest that this unchanged acceptance of shareholders for M&A activities exists because there are some synergies or gains, but the measures used in research do not acknowledge them properly. They state that in a market environment such inefficiencies (value destroying M&A transaction) are hard to believe.

I want to contribute to this debate by identifying, describing and finally analyzing several measures that are used in research and apply them on the same sample. According to Thanos & Papadakis the used measure in a study seems to highly influence the outcome. They found that return on assets (ROA) measures often lead to a negative outcome while cash flow measures often lead to a positive outcome. They state that the usage of several measures in the same study could lead to more robust results. There are a lot of different measures used to analyze M&A performance. Meglio & Risberg divide these measures into a financial domain including measures for market performance and measures for accounting performance and a non-financial domain including measures for operational performance and measures for overall performance. In my empirical analysis I will focus on accounting and market measures due to data availability. The accounting measures can be separated into three major categories: ratios, growth measures and operating cash flows.

I will start with a literature review to examine what measures are used to measure M&A Deal performance in research. Therefore, I categorize the accounting measures according to the framework of Thanos & Papadakis like described above and add the market measure abnormal returns to my analysis. Following my literature review I will discuss the pros and cons of the different measures and which measures seem eligible in which situation. After that I will analyze European M&A transactions using data from the Thomson Eikon Databank. Most research focuses on US M&A deals which results in an underrepresentation of research for European transactions. By analyzing the latter, I address this problem.