ACE research vignette 008 : acquisitions - a route to new growth opportunities?

This series of research vignettes is aimed at sharing current and interesting research findings from our team and other international Entrepreneurship researchers. In this vignette, Professor Per Davidsson considers some of the dynamics associated with firm growth.

The preferences of private equity investors in selecting target acquisitions : an international investigation

This study investigates the characteristics and attributes that private equity investors prefer when selecting target acquisitions. These characteristics are examined against a matched sample of firms subject to corporate acquisitions via tender/merger offer during 2000-2009, across seven countries: Australia, Canada, the United Kingdom, the USA, France, Germany and Sweden. We show that firm-specific characteristics are more influential in target selection than external or institutional variables. In particular, private equity targets exhibit lower stock volatility and long-term growth prospects, are larger, and have greater abnormal operating income relative to tender/merger offer target firms. Further, private equity bidders exhibit 'home bias', implying that familiarity motivates target selection. Institutional factors remain largely insignificant across all tests.

Access to East European and Eurasian culture : publishing, acquisitions, digitization, metadata

Review of the book 'Access to East European and Eurasian culture: publishing, acquisitions, digitization, metadata', edited by Miranda Remnek, published by Haworth Information Press, 2009.

The valuation accuracy of multiples in mergers and acquisitions, and their association with firm misvaluation

This study explores the accuracy and valuation implications of the application of a comprehensive list of equity multiples in the takeover context. Motivating the study is the prevalent use of equity multiples in practice, the observed long-run underperformance of acquirers following takeovers, and the scarcity of multiplesbased research in the merger and acquisition setting. In exploring the application of equity multiples in this context three research questions are addressed: (1) how accurate are equity multiples (RQ1); which equity multiples are more accurate in valuing the firm (RQ2); and which equity multiples are associated with greater misvaluation of the firm (RQ3). Following a comprehensive review of the extant multiples-based literature it is hypothesised that the accuracy of multiples in estimating stock market prices in the takeover context will rank as follows (from best to worst): (1) forecasted earnings multiples, (2) multiples closer to bottom line earnings, (3) multiples based on Net Cash Flow from Operations (NCFO) and trading revenue. The relative inaccuracies in multiples are expected to flow through to equity misvaluation (as measured by the ratio of estimated market capitalisation to residual income value, or P/V). Accordingly, it is hypothesised that greater overvaluation will be exhibited for multiples based on Trading Revenue, NCFO, Book Value (BV) and earnings before interest, tax, depreciation and amortisation (EBITDA) versus multiples based on bottom line earnings; and that multiples based on Intrinsic Value will display the least overvaluation. The hypotheses are tested using a sample of 147 acquirers and 129 targets involved in Australian takeover transactions announced between 1990 and 2005. The results show that first, the majority of computed multiples examined exhibit valuation errors within 30 percent of stock market values. Second, and consistent with expectations, the results provide support for the superiority of multiples based on forecasted earnings in valuing targets and acquirers engaged in takeover transactions. Although a gradual improvement in estimating stock market values is not entirely evident when moving down the Income Statement, historical earnings multiples perform better than multiples based on Trading Revenue or NCFO. Third, while multiples based on forecasted earnings have the highest valuation accuracy they, along with Trading Revenue multiples for targets, produce the most overvalued valuations for acquirers and targets. Consistent with predictions, greater overvaluation is exhibited for multiples based on Trading Revenue for targets, and NCFO and EBITDA for both acquirers and targets. Finally, as expected, multiples based Intrinsic Value (along with BV) are associated with the least overvaluation. Given the widespread usage of valuation multiples in takeover contexts these findings offer a unique insight into their relative effectiveness. Importantly, the findings add to the growing body of valuation accuracy literature, especially within Australia, and should assist market participants to better understand the relative accuracy and misvaluation consequences of various equity multiples used in takeover documentation and assist them in subsequent investment decision making.

Measuring the effects of mergers and acquisitions on the economic performance of real estate developers

Real estate developers in China are using mergers and acquisitions (M&As) to ensure their survival and competitiveness. However, no suitable method is yet available to assess whether such M&As provide enhanced value for those involved. Using a hybrid method of data envelopment analysis (DEA) and Malmquist total factor productivity (TFP) indices, this paper evaluates the short and medium term effects of M&As on acquirers’ economic performance with a set of 32 M&A cases occurring during 2000–2011 in China. The results of the analysis show that M&As generally have a positive effect on acquirers’ economic performance. Acquisitions on average experienced a steady growth in developer Malmquist TFP, a more progressive adoption of technology immediately after acquisition, a slight short-term decrease in technical efficiency after acquisition but followed by a marked increase in the longer term once the integration and synergy benefits were realised. However, there is no evidence to show whether developers achieved any short or long term scale efficiency improvements after M&A. The findings of this study provide useful insights on developer M&A performance from an efficiency and productivity perspective.

A Recursive Perspective on Discursive Legitimation and Organizational Action in Mergers and Acquisitions

This paper challenges the predominant view that legitimation is merely a specific phase in merger or acquisition processes. We argue that a better understanding of postmerger organizational dynamics calls for conceptualization of discursive legitimation as an inherent part of unfolding merger processes. In particular, we focus on the recursive relationship between legitimation and organizational action. We have two objectives: to outline a theoretical model that helps one to understand the dynamics of discursive legitimation and organizational action in postmerger organizations, and to examine a revealing case to distinguish the inherent risks and problems in discursive legitimation. Our case analysis focuses on the merger between the French pharmaceutical companies BioMérieux and Pierre Fabre. We adopt a critical multimethod approach and distinguish specific discursive dynamics and pathological tendencies in this case. The analysis highlights the unintended consequences of discursive legitimation, the central role of sensegiving and sensehiding in discursive legitimation, the inherently political nature of legitimation and the risks associated with politicization, the special problems associated with fashionable discourses and the role of the media, the use of specific discursive strategies for legitimation and delegitimation, and the crucial role of actual integration results. This analysis adds to the existing research on mergers and acquisitions by treating discursive legitimation as part of the merger dynamics. In particular, our case analysis provides a new explanation for merger failure. We also believe that the recursive model connecting discursive legitimation and delegitimation strategies to concrete organizational action makes a more general contribution to our understanding of organizational legitimation.

Cultural differences and capability transfer in cross-border acquisitions: the mediating roles of capability complementarity, absorptive capacity, and social integration

This paper presents an integrative model of the impact of cultural differences on capability transfer in cross-border acquisitions. We propose that cultural differences affect the post-acquisition capability transfer through their impact on social integration, potential absorptive capacity, and capability complementarity. Two dynamic variables – the use of social integration mechanisms, and the degree of operational integration of the acquired unit – are proposed to moderate the effects of cultural differences on social integration and potential absorptive capacity. The implications for acquisition research and practice are discussed.

Varities of National Metonymy in Media Accounts of International Mergers and Acquisitions

International mergers and acquisitions (M&As) often invoke national identification and national cultural differences. We argue that metonymy is a central linguistic resource through which national cultural identities and differences are reproduced in media accounts of international M&As. In this paper, we focus on two revealing cases: the acquisition of American IBM Personal Computer Division (PCD) by the Chinese company Lenovo and the acquisition of American Anheuser-Busch (A-B) by the Belgian-Brazilian company InBev. First, we identify the forms, functions and frequencies of national metonymy in media accounts of these cases. We present a typology that classifies varieties of national metonymy in international M&As. Second, we demonstrate how these metonyms combine with metaphor to generate evocative imagery, engaging wit, and subversive irony. Our findings show that national metonymy contributes to the construction of emotive frames, stereotypes, ideological differences, and threats. Combinations of national metonymy with metaphor also provide powerful means to construct cultural differences. However, combinations of metonymy with wit and irony enable the play on meanings that overturns and resists national and cultural stereotypes. This is the first study to unpack the deployment of metonymy in accounts of international M&As. In doing so, it also opens up new avenues for research into international management and the analysis of tropes in management and organization.

A recursive perspective on discursive legitimation and organizational action in mergers and acquisitions

This paper challenges the predominant view that legitimation is merely a specific phase in merger or acquisition processes. We argue that a better understanding of postmerger organizational dynamics calls for conceptualization of discursive legitimation as an inherent part of unfolding merger processes. In particular, we focus on the recursive relationship between legitimation and organizational action. We have two objectives: to outline a theoretical model that helps one to understand the dynamics of discursive legitimation and organizational action in postmerger organizations, and to examine a revealing case to distinguish the inherent risks and problems in discursive legitimation. Our case analysis focuses on the merger between the French pharmaceutical companies BioMérieux and Pierre Fabre. We adopt a critical multimethod approach and distinguish specific discursive dynamics and pathological tendencies in this case. The analysis highlights the unintended consequences of discursive legitimation, the central role of sensegiving and sensehiding in discursive legitimation, the inherently political nature of legitimation and the risks associated with politicization, the special problems associated with fashionable discourses and the role of the media, the use of specific discursive strategies for legitimation and delegitimation, and the crucial role of actual integration results. This analysis adds to the existing research on mergers and acquisitions by treating discursive legitimation as part of the merger dynamics. In particular, our case analysis provides a new explanation for merger failure. We also believe that the recursive model connecting discursive legitimation and delegitimation strategies to concrete organizational action makes a more general contribution to our understanding of organizational legitimation.

The Impact of Cultural Factors on Post-Acquisition Integration: Domestic and Foreign Acquisitions of Finnish Companies in 1993-2004

Acquisitions are a central component of corporate strategy. They contribute to competitive advantage by offering possibilities for both cost reductions and for revenue enhancements. However, many acquisition benefits cannot be realized without a successful integration of the acquiring and the acquired firms. Previous research shows that national and organizational culture can play a major role in determining the integration outcomes. Therefore, the overall aim of the thesis is to map out and illustrate the impact mechanisms of cultural factors in post-acquisition integration in order to explain the cultural aspects of acquisitions. This study has three main contributions. First, the study shows that international and domestic acquisitions differ concerning both strategic and cultural fit. Second, the findings highlight the importance of acculturation and cultural integration in determining post-acquisition outcomes. Finally, the study uncovers several impact mechanisms that shed light to the contradictory results related to cultural differences in previous research.

Network integration for international mergers and Acquisitions

Business activities are increasingly taking place across geographical and ownership boundaries. Post-Merger & Acquisition Integration (PMI) processes are more challenging in network organisations due to the extra complexity and interdependency associated with networks. However, network integration issues are not well addressed in the traditional M&A literature or the network organisation literature. Based on ten in-depth case studies across key industry sectors, this research identifies the essential network integration issues for international M&As with a configuration concept, and demonstrates different network integration patterns according to M&A objectives for growth and efficiency. This paper extends the theoretical understanding of PMI for network organisations. It can also provide practical guidance for managers to assess the feasibility of an M&A transition or to go through the PMI process successfully. Copyright © 2010 Inderscience Enterprises Ltd.