Chapter 1 provides an introduction and overview of this dissertation. Firstly in this chapter, the background of the research is introduced. Following this is the central question, the aim, and the objectives of the dissertation. Finally, the scope and the structure of the dissertation are presented.
1.1 Background
Mergers and acquisitions (M&A) refer to two companies combined into one to achieve certain strategic and business objectives (Sudarsanam 2003). This activity aims to create value for the stakeholders who are connected to the companies such as shareholder and employees. According to Sudarsanam (2003), firms generally enter into M&A for different sorts of reasons, reasons which involve aspects that are economic, strategic, financial, managerial, and organizational. By considering the aspects above, companies are able to set proper plans and to conduct due diligence in advance, and thereby to realize all their plans carefully, and to achieve their corporate strategic goals.
M&A is certainly not an end but a start. When a firm effectively underwent M&A, simultaneously, a new challenge for the combined company, to integrate two different entities, had just started. Post-M&A integration is an important essential for further successfully achieving those objectives set before M&A deals; if a combined firm cannot integrate well, it might not achieve those objectives because the new team does not work smoothly. The results differ from firm to firm due to the different integration conditions. When M&A proceeds successfully and the set goals are realized, a higher value can be created for the stakeholders. On the contrary, when M&A does not go
well and fails to create any value, the M&A could prove to be a disaster for the companies’ stakeholders. In fact, the empirical evidence studies show both positive and negative post-M&A performance (largely negative) for the merged companies in the long-run. Therefore, an M&A initiative cannot be assured of a definite successful result.
Because the overall empirical post-M&A performance is still controversial, researchers have been trying to explain various performance from different viewpoints, such as different type of M&A (horizontal, vertical, or conglomerate), different medians of M&A (cash or stock swap), different market-to-book value of acquiring companies, and whether the business of combined companies are more focused or diversifies comparing to pre-M&A stages, etc. In this dissertation, the investigation is going to analyze the performance in post-M&A integration stages from the viewpoints of relative size of combining firms, discussing how various relative sizes between combining firms influence post-M&A performance. The analysis will start from investigating the effect in the short-term and then extend to which in the long-term.
1.2 Central Question
To investigate the relative size of combing firms and connect it to combined firms’
performance in post-M&A integration phases, the central question asked in this dissertation is:
How does relative firm size between target and acquiring companies influence
post-merger performance?
1.3 Aims
Having described the background and developed the central question, two main purposes of this dissertation are as below:
1. The dissertation aims to analyze the overall short-term performance within the first quarter after M&A and investigate how relative size of the combining firms influences post-M&A performance in the short-term.
2. The dissertation aims to analyze the overall long-term post-M&A performance and investigate how relative size of the combining firms influences the long-term performance.
Overall, the dissertation aim to discuss the various post-M&A performance from the viewpoints of relative size of combing firms by seeing whether it is a factor for post-M&A performance, and how it influences post-M&A performance in the short-run and long-run.
1.4 Objectives
To achieve the primary aim of the thesis above, five main objectives of the dissertations are divided into short-term and long-term analyses:
Short-term:
1. To analyze the overall post-M&A performance in the short-term by conducting an event study analysis.
2. To classify different relative sizes into various groups and compare if there is any
different long-term post-M&A performance gap between different groups by conducting event study analyses.
3. To figure out if there is any relationship between relative size of combing firms and the post-M&A performance in the short-run by conducting a regression analysis.
Long-term:
4. To analyze the overall post-M&A performance in the long-term by conducting event study analyses.
5. To classify different relative sizes into various groups and compare if there is any different long-term post-M&A performance gap between different groups by conducting event study analyses.
1.5 Scope
The scope of the dissertation is defined by two dimensions:
1. In the geographical aspect, due to availability and completeness of the data, the investigation will focus on firms which had undergone M&A activities in the U.S.A.
2. In the time aspect, in order to observe both the short-term and the long-term performance of the combined firms, the investigation will concentrate in the M&A deals announced between 2000 and 2001, so that the long-run post-M&A performance can be tracked for as long as five years.
1.6 Dissertation Structure
The dissertation begins with the introduction of Chapter 1.
Chapter 2 will present an overall literature review, which introduces the general concepts and rationales of M&A. The critical post-M&A integration issues and the assessments of measuring post-merger performance will also be generalized.
Chapter 3 will introduce the main issue of the dissertation: the impact of relative size.
The arguments and the hypotheses of this dissertation will be presented in this chapter.
Chapter 4 will introduce the research method of the dissertation; the investigating methodology of ‘regression analysis’ and ‘event study’ will be discussed in this chapter. The data sources would also be introduced in this chapter.
In chapter 5, the short-term and long-term post-M&A performance assessed by market and operating performance of the data firms will be analyzed through regression analysis and event studies.
Chapter 6 will discuss the overall research results.
Chapter 7 will present the conclusions and recommendations of the dissertation. The dissertation structure is shown in the figure 1.1 below.