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Why Companies Decide to Participate in Mergers and Acquisition Transactions



The article describes the most common motives for companies’ decision to participate in mergers and acquisitions’ transactions. It underlines the importance of the growth factor, whereas the following factors – namely, synergy, diversification and so on – just support the growth motive. Since mergers and acquisitions involve two different parties – the buyer and the seller – the examples of reasons from both perspectives are provided too. Article in English. Kas lemia įmonių sprendimą dalyvauti sudarant susijungimų bei įsigijimų sandorius Santrauka. Straipsnyje apibūdinami įmonių susijungimų bei įsigijimo sandoriai bei analizuojamos pagrindinės priežastys, lemiančios įmonių sprendimą prisidėti prie tokių sandorių sudarymo. Jame pateikiamos teorinės perspektyvos kartu su keliais jau įvykusiais įmonių susijungimo ir įsigijimo pavyzdžiais, pabrėžiamas įmonių nepaliaujamas noras plėsti veiklą, t. y. augti, kuris ir yra pagrindinis veiksnys, lemiantis įmonių susijungimą bei įsigijimą. Kiti veiksniai – sinergija, nematerialus kapitalas, veiklos diversifikacija ir pan. – yra tik antriniai, gaunami iš pirmojo – augimo – veiksnio. Kadangi sudarant tokius sandorius dalyvauja dvi šalys – pardavėjas ir pirkėjas, pateikiami tiek pardavėjo, tiek pirkėjo argumentai. Reikšminiai žodžiai: susijungimai, įsigijimai, priežastys, motyvai.
2009, 1 tomas, Nr. 3
2009, Vol. 1, No 3
Verslas XXI amžiuje
Business in XXI Century
© Vilniaus Gedimino technikos universitetas
ISSN 2029-2341(print)/ISSN 2029-2252 (online)
Eglė Duksaitė
, Rima Tamošiūnienė
Vilnius Gediminas Technical University
The article describes the most common motives for companies’ decision to participate in mergers and ac-
quisitions’ transactions. It underlines the importance of the growth factor, whereas the following factors – namely, syn-
ergy, diversification and so on – just support the growth motive. Since mergers and acquisitions involve two different
parties – the buyer and the seller – the examples of reasons from both perspectives are provided too
Keywords: mergers and acquisitions, reasons, motives.
Have you ever heard about Vodafone’s merger with
Mannesman in 1999 (transaction worth 172.2 billion $),
BHP Billiton’s merger with Rio Tinto in 2008 (transac-
tion worth 147.4 billion $), America Online’s merger
with Time Warner in 2000 (transaction worth 112.1 bil-
lion $) (Reuters)? Or PKN Orlen’s acquisition of
Mažeikių Nafta for 5800 million litas in 2006, TeliaSon-
era’s acquisition of Lietuvos Telekomas for 2040 million
litas in 1998 or Mid Europa Partners’ acquisition of Bitė
for 1554 million litas in 2007 (Verslo žinios, Intellinet
database)? These are just a few examples of the biggest
mergers and acquisitions (M&A) transactions worldwide
and in Lithuania. M&A’s are radically changing the cor-
porate landscape not only worldwide, but in Lithuania as
well. Driven by the philosophy of shareholder value, they
form a new economic, social and cultural environment.
But what are the reasons behind them?
According to Gaughan (2007), DePamphilis (2003),
Scott (2003), a merger is a combination of two corpora-
tions in which only one corporation survives and the
merged corporation goes out of existence. In a merger,
the acquiring company assumes the assets and liabilities
of the merged company. Moreover, although the buying
firm may be a considerably different organization after
the merger, it retains its original identity.
An acquisition occurs when one company takes a
controlling ownership interest in another firm, a legal
subsidiary of another firm, or selected assets of another
firm such as a manufacturing facility (DePamphilis
2003). In other words, an acquisition is the purchase of an
asset such as a plant, a division, or even an entire com-
pany (Scott 2003).
On the surface, the distinction in meaning of
“merger” and “acquisition” may not really matter, since
the net result is often the same: two companies (or more)
that had separate ownership are now operating under the
same roof, usually to obtain some strategic or financial
objective. Yet the strategic, financial, tax, and even cul-
tural impact of a deal may be very different, depending
on the type of transaction (Sherman, Hart 2006).
Fundamental Question: Buy versus Build
Many years executives and entrepreneurs have been
searching for efficient and profitable ways to increase
revenues and win as big market share as possible. It is
obvious that no matter how big or small the business is,
in order to be in line with shareholders’ expectations it is
crucial to grow.
The growth options are as follows (Sherman, Hart
Internal or organic growth (e.g. hiring additional
salespeople, developing new products, expanding
geographically, which, in fact, is a very time and
strength consuming option);
Inorganic growth (e.g. acquisition of or merger
with another firm, often done to gain access to a
new product line, customer segment, or geogra-
phy) or by external means (e.g. franchising, licen-
sing, joint ventures, strategic alliances, and the
appointment of overseas distributors, which are
available to growing companies as an alternative
to mergers and acquisitions as a growth engine).
In response to the good growth prospects, mergers
and acquisitions, just like internal investments, are the
means for companies to increase their capital base, as
concluded by Andrade, Stafford (2004).
It is obvious that companies may grow within their
own industry or they may expand outside their business
category, which means diversification. If a company
seeks to expand within its own industry they may con-
clude that internal growth is not an acceptable alternative.
For example, let’s imagine that a company has a window
of opportunity that will remain open for only a limited
period of time – in this case slow internal growth may not
suffice. If the company grows slowly through internal
expansion, competitors may respond quickly and take the
available market share. Even advantages that a company
may have can dissipate over time by the actions of com-
petitors. The only solution may be to acquire another
company that has the resources, such as established of-
fices and facilities, management, and other resources, in
place. There might be many opportunities that must be
acted on immediately – otherwise they disappear. It could
be that a company has developed a new product or proc-
ess and has a time advantage over competitors. Even if it
is possible to patent the product or process, this does not
prevent competitors from possibly developing a compet-
ing product or process that does not violate the patent.
Another example would be if a company developed a
new merchandising concept. Being first to develop the
concept provides a certain limited time advantage. If not
properly taken advantage of, it may slip by and become
an opportunity for larger competitors with greater re-
Another example of using M&A to facilitate growth
is when a company wants to expand to another geo-
graphic region. It could be that the company’s market is
in one part of the country but it wants to expand into
other regions. Alternatively, perhaps it is already a na-
tional company but seeks to tap the markets of other na-
tions, such as a U.S. firm wanting to expand into Europe
or contrary. In many instances, it may be quicker and less
risky to expand geographically through acquisitions than
through internal development. This may be particularly
true of international expansion, where many characteris-
tics are needed to be successful in a new geographic mar-
ket. The company needs to know all of the nuances of the
new market and to recruit new personnel and overcome
many other hurdles such as language, culture and similar
barriers. Internal expansion may be much slower and
What variables should a growing company consider
in striking the right balance between organic growth
(build) vs. mergers and acquisitions (buy)? These include
(Sherman, Hart 2006):
The competitiveness, fragmentation and pace of
marketplace and industry;
The access to and cost of capital;
The specific capabilities of management and ad-
visory teams;
The strength and growth potential of current core
The volatility and loyalty of distributions chan-
nels and customer base;
The degree to which speed to market and scale
are critical in business (including typical custo-
mer acquisition costs and timeframes);
The degree to which company operates in a regu-
lated industry.
Growth is the most common reason cited as a mo-
tive for M&A transactions. For example, let’s have a look
at Societe Generale Consumer Finance acquisition of
General Financing, a Lithuanian entity specialized in
consumer credit activities (including the brand Kredi-
tas123). Jean-Francois Gautier, Head of Specialized Fi-
nancial Services of Societe Generale Consumer Finance
declared: “The acquisition of General Financing allows
us to set foot on the new fast-growing market while rely-
ing on the local knowledge of one of the leaders of con-
sumer finance in Lithuania”. “This acquisition is a timely
coincidence of Societe Generale strategic entry to Lithua-
nian consumer finance market and of General Financing’s
goal to have a strong, established funding base necessary
for further rapid expansion,” commented Karolis Pocius,
partner of GILD Bankers. “With the coming of Societe
Generale Consumer Finance, UAB „General Financing“
has completed its first stage of development and obtained
one of the strongest possible partners to expand further its
market share. Despite a controversial macroeconomic
outlook, the company is now set for rapid expansion”, -
commented the general manager of General Financing
Raimondas Rapkevičius.
Synergy as a Reason for Mergers and Acquisitions
Gaughan (2007) states that the term “synergy” is of-
ten associated with the physical sciences rather than with
economics or finance. It refers to the type of reactions
that occur when two substances or factors combine to
produce a greater effect together than that which the sum
of the two operating independently could account for.
Simply stated, synergy refers to the phenomenon of
2 + 2 = 5. In mergers this translates into the ability of a
corporate combination to be more profitable than the
individual parts of the firms that were combined.
The two main types of synergy are (DePamphilis
1. Operating synergy, which consists of both:
economies of scale (or the spreading of fixed
costs, such as depreciation of equipment and am-
ortization of capitalized software; normal mainte-
nance spending; obligations such as interest
expense, lease payments, and union, customer,
and vendor contracts; and taxes, of over increas-
ing production levels); and economies of scope
(which refers to using a specific set of skills or an
asset currently employed in producing a specific
product or service to produce related products or
2. Financial synergy, which refers to the impact of
mergers and acquisitions on the cost of capital of
the acquiring firm or the newly formed firm re-
sulting from the merger or acquisition. Theoreti-
cally, the cost of capital could be reduced if the
merged firms have uncorrelated cash flows, real-
ize financial economies of scare, or result in a
better matching of investment opportunities with
internally generated funds.
Access to Intangible Assets
The emergence of the knowledge era since the
1980s has brought significant change in both global and
local markets. Knowledge, as a core organizational re-
source and the basis for the development of organiza-
tional capabilities, is playing a key role in driving
changes in companies. Today the value of knowledge-
based, intangible resources has grown geometrically in
companies. The intangible assets include (Saint-Onge,
Chatzkel 2009):
1. Human capital, which is the sum of all the capa-
bilities of everyone who is currently working in a
company, i.e. the cumulative knowledge, experi-
ence, attributes, competencies, and mindsets of all
employees, managers, and leaders. These individ-
ual capabilities of employees create value for the
2. Customer capital, which consists of the strategies,
structures, processes, and leadership that translate
into a company’s specific core competencies.
These organizational capabilities leverage em-
ployees’ individual capabilities to create value for
customers. Structural capital also includes the or-
ganizational capacity and physical systems used
to transmit and store intellectual material. Struc-
tural capital is composed in a large part of:
company’s organization (investment in systems,
operational philosophy, and supplier and distribu-
tion channels),
innovation (capability to renew a company along
with the outcomes of innovation, which include
the ability to anticipate market needs and lead the
market in responding, the ability to bring new
products to market rapidly, intellectual assets and
intellectual property (which include copyrights,
patents, trademarks, and trade secrets), compa-
ny’s brand and theory of your business. Although
the best-known innovation capital is usually intel-
lectual property, these are even more critical to
company’s well-being),
processes (comprises all the processes of the
company that enable to create and deliver goods
and services to both internal and external custo-
mers. These can be production, design, and pro-
duct development processes; people development
processes; communication processes; strategy-
making processes, and knowledge development,
capture, and leveraging processes).
3. Structural capital, which is the sum of all cus-
tomer relationships, that can be defined by four
depth penetration or share of customers’
breadth – coverage or share of the market,
sustainability – the durability of relationship with
the profitability of company’s relationships with
all customers.
Furthermore, human capital interfaces with cus-
tomer capital and structural capital to create knowledge
value capital. These weightless assets now have a greater
value in organizations than physical or financial assets.
This has been coupled with fundamental changes in legal,
competitive, and global requirements. For example, one
such quantum shift is the emergence of the European
Union (EU), with its dismantling of boundaries and re-
duction of trade barriers. The emergence of the EU has
also led to a shift in the regulatory environment in
Europe, creating pressures to combine organizational
strengths simply to be able to compete on a larger scale.
A merger or acquisition can open up and recombine
the resource sets of the two companies involved. For
example, the intangible, financial, and tangible assets of
Company A are joined with the clusters of those re-
sources from Company B. In a merger or an acquisition,
there are unprecedented opportunities to bring these re-
sources from the acquiring and the acquired companies
together in novel ways – and in ways that were not previ-
ously possible – to produce significant gains in your
company’s overall performance and wealth. This is the
potential promise of a merger or acquisition. It is not
merely adding the cumulative resources of one company
to those of the other, but a recombining of all resources:
financial, tangible, and all the dimensions of intangibles
(Saint-Onge, Chatzkel 2009).
For example, Symantec’s acquisition of Axent
Technologies in 1999. That “acquisition was also the
catalyst for changing Symantec processes to support an
enterprise business. Axent had systems in place for serv-
ing major corporate customers, and just as important, its
senior executives had an understanding of the service and
support needs of that market. As the former Axent execu-
tives assumed leadership roles at Symantec, they helped
guide the company’s investment in and deployment of
new systems to undergird the new enterprise thrust”
(Fisher 2009).
Another example is the acquisition of Fontes Vil-
nius by MPS Enterprises Ltd., which is an EU-based,
private partnership corporation. Pasis Hartunen, the man-
aging director of MPS for Baltic region, says that “the
purpose of the transaction is to settle down in quickly
developing Lithuanian and Baltic human resource con-
sulting market. We will be looking for opportunities to
provide new services to the current and prospective cli-
ents in Baltics and international markets”. Alternatively,
Regina Laimikienė, the managing partner of Fontes Vil-
nius, says that “now we will be able to learn from the
long-lasting experience of the leading corporation and its
broad spectrum of services, which was formed while
working in international markets. This transaction will
allow us to offer a greater value to the client, but also to
provide with the exceptional human resources decisions.
This way we can become a trustworthy partner not only
in Lithuania, but also abroad.”
So, in today’s knowledge economy intangible as-
sets, which are seen as organization’s most valuable as-
sets, are also the most fragile and difficult to control since
they depend on the goodwill and commitment of people.
Other Reasons for Mergers and Acquisitions
Apart from growth, synergy and access to intangible
assets motives, there are several other reasons that drive
companies to engage in M&A, which are widely reported
in the literature:
Horizontal and vertical integration (Gaughan
2007). Horizontal integration refers to the increa-
se in market share and market power that results
from acquisitions and mergers of rivals. Vertical
integration refers to the merger or acquisition of
companies that have a buyer-seller relationship.
Improved management (e.g., belief of better ma-
nagement of target’s resources), research and de-
velopment (e.g. it is critically important for the
future growth of many companies, particularly
pharmaceutical companies) and/or distribution
(e.g., when there is no direct access to ultimate
customers) (Gaughan 2007).
Tax benefits (certain studies have concluded that
acquisitions may be an effective means to secure
tax benefits) (Ghosh, Jain 2000);
Changes in markets, e.g. regulatory changes, real-
location of market power (Cassiman, Colombo
Changes in technology and industry, e.g. emer-
gence of new businesses and markets, new forms
of communications and cross-border restructuring
(Cassiman, Colombo 2006), reaction to deregula-
tion, increased foreign competition, financial in-
novations, oil price shocks (Andrade, Stafford
Cost reduction (Kreitl, Oberndorfer 2004).
Extension of R&D capacities (Kreitl, Oberndorfer
Obtaining a new customer base (Kreitl, Obern-
dorfer 2004).
While all the above mentioned motives fall under
the buyer’s perspective (and this is widely reported in the
literature), we must not forget that any M&A transaction
also includes the other side the seller. Frankel Hence,
(2007) and Sherman with Hart (2006) provide the mo-
tives for M&A from the two different perspectives. Since
the buyer’s perspective has been analyzed above, let’s
have a look at the seller’s motives, which include the
following points:
Company does not have the resources to grow
Because a company thinks it has maximized
growth in its own market and does not think it can
expand to new markets;
It thinks it reached its historical peak of its valua-
Lack of viable replacement for the founder of the
company, as the founder approaches to retire-
Lack of access to capital (including the restric-
tions of borrowing capacity);
If the company is owned by investors, they might
want to cash out;
New competitors emerge.
It is obvious that the choice to sell is one of the most
dramatic – last and big decision that a company will ever
make. It has an influence on everyone, associated with
the company. At the same time, the decision to be a buyer
today is a standard business tool, utilized by many, if not
most, companies.
To sum up, the following conclusions can be made:
1. Mergers and acquisitions are understood as a
general global trend associated with a global cor-
porate restructuring across industries.
2. All the motives for mergers and acquisitions
transactions might be divided into: primary and
secondary drivers.
3. The primary reason for companies to participate
in mergers and acquisitions transaction is growth.
4. The secondary motives – namely, synergy, access
to intangible assets, diversification, horizontal
and vertical integration and so on – arise from the
primary companies’ motive to grow.
5. Most of the motivations for mergers and acquisi-
tions feature serve as means of reshaping com-
petitive advantage within their respective
industries. However, it may be that some of the
motives identified affect some industries more
than others, and in that sense they can be ex-
pected to be associated with a greater intensity of
mergers and acquisitions in certain sectors rather
than others.
Andrade, G.; Stafford, E. 2004. Investing the economic role of
mergers, Journal of Corporate Finance 10: 1–36.
Cassiman, B.; Colombo, M. G. 2006. Mergers and Acquisi-
tions: the Innovation Impact. Edward Elgar Publising.
DePamphilis, D. 2003. Acquisitions and Other Restructuring
Activities: An Integrated Approach to Process, Tools,
Cases, and Solutions. Butterworth-Heinemann.
Fisher, L. M. Symantec’s Strategy-Based Transformation
[accessed on 1 February, 2009]. Available from Internet:
Frankel, M. E. S. 2007. Mergers and Acquisitions Deal-
Makers:Building a Winning Team. John Willey & Sons.
Gaughan, P. A. 2007. Mergers, Acquisitions, and Corporate
Restructurings. John Wiley & Sons.
Ghosh, A.; Jain, P. C. 2000. Financial leverage changes associ-
ated with corporate merger, Journal of Corporate Finance
6: 377–402.
Intellinet database [accessed on 1st of February, 2009]. Avail-
able through Deloitte intranet.
Kreitl, G.; Oberndorfer, W. J. 2004. Motives for acquisitions
among engineering consulting firms, Construction Man-
agement and Economics 22: 691–700.
Saint-Onge, H.; Chatzkel, J. 2009. Beyond the Deal: Mergers &
Acquisitions that Achieve Breakthrough Performance
Gains. McGraw-Hill.
Scott, D. L. 2003. Wall Street Words: An A to Z Guide to In-
vestment Terms for Today’s Investor.
Sherman, A. J.; Hart, M. A. 2006. Mergers and Acquisitions
from A-Z. Amacom.
Verslo žinios website [accessed on 1
of February, 2009].
Available from Internet: <>.
E. Duksaitė, R. Tamošiūnie
Straipsnyje apibūdinami įmonių susijungimų bei įsigijimo
sandoriai bei analizuojamos pagrindinės priežastys, lemiančios
įmonių sprendimą prisidėti prie tokių sandorių sudarymo. Jame
pateikiamos teorinės perspektyvos kartu su keliais jau įvyku-
siais įmonių susijungimo ir įsigijimo pavyzdžiais, pabrėžiamas
įmonių nepaliaujamas noras plėsti veiklą, t. y. augti, kuris ir yra
pagrindinis veiksnys, lemiantis įmonių susijungimą bei įsigi-
jimą. Kiti veiksniai – sinergija, nematerialus kapitalas, veiklos
diversifikacija ir pan. – yra tik antriniai, gaunami iš pirmojo –
augimo – veiksnio. Kadangi sudarant tokius sandorius daly-
vauja dvi šalys – pardavėjas ir pirkėjas, pateikiami tiek par-
davėjo, tiek pirkėjo argumentai.
Reikšminiai žodžiai: susijungimai, įsigijimai, priežastys, mo-
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This paper addresses the impact of horizontal mergers on innovation, in an industry with a generic number of low‐cost and high‐cost competitors who first decide their level of process innovation and then compete in quantities in the product market. We derive the Nash equilibrium expressions for this game as a function of all the parameters involved, including number of players of each type, production costs, cost reductions achieved, and associated process innovation costs. Model results and parameter dependency are then illustrated in with a simulation of horizontal merger effects.
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Research question: The purpose of this paper is twofold: first, to examine the effects of acquisitions on organizational culture in terms of the degree of change in certain organizational culture dimensions, and second, to examine effects of organizational culture differences on the acquired company’s performance. Motivation: Although many studies have examined the relationships among acquisitions, organizational culture and performance, especially the relationship between organizational culture differences and company performance in developed economies (Chatterjee et al., 1992; Weber & Camerer, 2003; Krishnan et al., 1997), little attention has been paid to the research into these relationships in the emerging economies. Understanding the cultural issues in the context of acquisition in the emerging economy will contribute to the literature and enable comparison of research results with results obtained in developed economies. Idea: The core idea of this paper was to empirically evaluate the relationship among acquisitions, organizational culture and performance on the example of an acquired company in the Republic of Serbia, as the emerging economy. The paper focuses on exploring the employees' perceptions of organizational culture change in the period after the acquisition, as well as managers’ perceptions of the acquired company’s performance. Data: The survey was conducted in the company operating in the Republic of Serbia which was the subject of cross-border acquisition. The sample consists of 344 respondents (managers and employees) from the acquired company. Tools: Descriptive statistical analysis, Mann-Whitney U-test and regression analysis were applied in the study. Findings: The results of the research demonstrate that innovation as a dimension of organizational culture has changed to a greatest extent. Further, the results show that there are no statistically significant differences in the ways of how managers and employees perceive changes in organizational culture. Additionally, the results of the research show that organizational cultural differences have a positive influence on performance of the acquired company. Contribution: This paper contributes to a better understanding of the significance of organizational culture changes in an acquired company in the emerging economy and formulates practical suggestions for the managers in future acquisitions.
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One of the main directions of the analysis of business combinations, are the motives behind them - the reasons that incite the participants in a transaction to implement integration processes. To a great extent, the motives for doing business combinations are behind the premium paid for many of the acquisitions that lead to the emergence of the accounting category "goodwill". The purpose of this article is to clarify the main groups of motives that underlie acquisitions and the relationship of these motives to the accounting treatment of business combinations. We suggest that not always the motives initially underpinned by the business combination can be metrified after the transaction and this makes them practically very difficult to assess. That is important in the implementation of accounting impairment of goodwill recognized as a result of business combinations.
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This paper conducts a study of the influence of bank mergers on the financial performance of the merged banks, using the takeover of Halifax Bank of Scotland (HBOS) by Lloyds TSB in September 2008 as an example. In spite of certain limitations, accounting ratios are still convenient and reliable analytical tool in all financial decision-making processes. The results show that the financial performance of Lloyds TSB in the areas of profitability after merger is not improved significantly. This result is inconsistent with previous studies that bank M&A results in improved profitability. However, it would be incorrect to say that M&A activities are completely negative (or positive) to banks.
Mergers, Acquisitions, and Other Restructuring Activities: An Integrated Approach to Process, Tools, Cases, and Solutions, Ninth Edition, is the most current, comprehensive and cutting-edge text on M&A and corporate restructuring available. It includes many of the most up-to-date and notable deals and precedent setting judicial decisions, as well as new regulations, trends and tactics employed in M&As. The implications of recent developments such as negative interest rates on valuation and the backlash against globalization for cross-border M&As are discussed. More than 90% of the case studies are new for this edition, involving deals either announced or completed during the last several years. It is comprehensive in that nearly all aspects of M&As and corporate restructuring are explored from business plan development to target selection and valuation to negotiation and post-merger integration. It is cutting edge in that conclusions and insights are anchored by the most recent academic research, with references to more than 160 empirical studies published in leading peer-reviewed journals just since the release of the last edition in 2015. Teaches about the financial, legal, accounting and strategic elements of mergers and acquisitions by concentrating on the ways their agents interact Emphasizes current events and trends through new and updated cases Highlights international mergers and acquisitions activities.
'The volume provides provocative new insights into the dynamic relationship between two of the most strategic priorities for 21st century firms: technological innovation and M&As. It does so by bringing together in a novel way the literature on these two different areas of firm activity and by adding economic theory and advanced empirical methods (both qualitative and quantitative) to the management literature on the subject. The analysis proves remarkably fruitful, finally creating less uncertainty and inconclusiveness around the empirics of post M&A performance. By developing a broad set of measures on innovation for assessing the impact of M&A on innovation, and by relying on fascinating case studies on individual M&As (rather than just using R&D expenditures, patent counts, etc.), the authors are able to document the importance for post M&A performance of dynamic factors like market and technology relatedness (between partners) - findings that have critical implications for economic theorists, business practitioners and policymakers.' - Mariana Mazzucato, Open University, UK. This book examines the issue of mergers and acquisitions (M&As) in the context of technological development, and in particular the impact of M&As on the innovation process. In so doing, the book integrates two bodies of literature, on M&As, and on innovation studies, a nexus which the editors contend represents an important step in the advancement of our understanding of both with clear implications for competitive advantage and growth of firms. Drawing on perspectives from both management and economics, the book offers a cohesive blend of theory, methodology, and a wealth of empirical material. © Bruno Cassiman and Massimo G. Colombo, 2006
Merger WavesWhat Causes Merger Waves?First Wave, 1897–1904Second Wave, 1916–1929The 1940sThird Wave, 1965–1969Trendsetting Mergers of the 1970sFourth Wave, 1984–1989Fifth WaveSixth Merger WaveSummary
We empirically examine whether firms increase financial leverage following mergers. Firms could increase financial leverage either because of an increase in debt capacity or because of unused debt capacity from pre-merger years. We find that financial leverage of combined firms increases significantly following mergers. A cross-sectional analysis shows that the change in financial leverage around mergers is significantly positively correlated with the announcement period market-adjusted returns. Further tests indicate that the increase in financial leverage is an outcome of an increase in debt capacity, although there is weak evidence that some of the increase in financial leverage is a result of past unused debt capacity.
We investigate the economic role of mergers by performing a comparative study of mergers and internal corporate investment at the industry and firm levels. We find strong evidence that merger activity clusters through time by industry, whereas internal investment does not. Mergers play both an “expansionary” and “contractionary” role in industry restructuring. During the 1970s and 1980s, excess capacity drove industry consolidation through mergers, while peak capacity utilization triggered industry expansion through non-merger investments. In the 1990s, this phenomenon is reversed, as industries with strong growth prospects, high profitability, and near capacity experience the most intense merger activity.
Many empirical studies across various industry sectors show a high failure rate of mergers and acquisitions (M&A), suggesting that this instrument of corporate development is rather risky. Since engineering consulting firms usually have a low tangible asset base as well as good educated and highly mobile professionals, carrying out an M&A transaction in this particular service sector creates an even higher risk. It is evident from the relevant construction and engineering literature that a large number of engineering consulting firms engage in M&A for their corporate development. Owing to the uniqueness of that service sector combined with the high failure rate of M&A, a survey among the top 100 engineering consulting firms in Europe was conducted to investigate the motives behind M&A transactions. Findings suggest that diversification into new service/client markets as well as the penetration into new geographic markets were the most important motives. Further, increasing the firm's market share and the acceleration of growth were the next most popularly rated motives, while tax reasons or spending the firm's excess cash were both seen as relatively unimportant motives. The results show that - compared to other industry sectors - engineering consulting firms had some very different motives or another emphasis was placed on those motives when conducting an M&A transaction. Results also show that some motives were just as important for engineering consulting firms as for firms of other industry sectors, for example the increase of market share or the acceleration of firm growth.
Beyond the Deal: Mergers & Acquisitions that Achieve Breakthrough Performance Gains
  • H Saint-Onge
  • J Chatzkel
Saint-Onge, H.; Chatzkel, J. 2009. Beyond the Deal: Mergers & Acquisitions that Achieve Breakthrough Performance Gains. McGraw-Hill.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor
  • D L Scott
Scott, D. L. 2003. Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor.
Symantec's Strategy-Based Transformation
  • L M Fisher
Fisher, L. M. Symantec's Strategy-Based Transformation [accessed on 1 February, 2009]. Available from Internet: <>.
Mergers and Acquisitions Deal-Makers:Building a Winning Team
  • M E S Frankel
Frankel, M. E. S. 2007. Mergers and Acquisitions Deal-Makers:Building a Winning Team. John Willey & Sons.