The effects of cross-border and cross-industry mergers and acquisitions on home-region and global multinational enterprises

We examine the effects of international and product diversification through mergers and acquisitions (M&As) on the firm's risk–return profile. We identify the rewards from different types of M&As and investigate whether becoming a global firm is a value-enhancing strategy. Drawing on the theoretical work of Vachani (Journal of International Business Studies, 22 (1991), pp. 307−222) and on Rugman and Verbeke's (Journal of International Business Studies, 35 (2004), pp. 3−18) metrics, we classify firms according to their degree of international and product diversification. To account for the endogeneity of M&As, we develop a panel vector autoregression. We find that global and host-region multinational enterprises benefit from cross-border M&As that reinforce their geographical footprint. Cross-industry M&As enhance the risk–return profile of home-region firms. This effect depends on the degree of product diversification. Hence there is no value-enhancing M&A strategy for home-region and bi-regional firms to become ‘truly global’.

Game-theoretic aspects of international mergers: Theory and case studies

This paper studies the exclusion of potential competition as a motivating factor for international mergers. We propose a simple game-theoretic framework in order to discuss the conditions under which mergers that prevent reciprocal domestic competition will occur. Our analysis highlights the shortcomings of antitrust policies based on pre-merger/post-merger concentration comparisons. A review of several recent European cases suggests that actual merger policy often fails to consider potential competition.

Mergers and acquisitions: driving the growth of MNEs

This paper examines the effects of internationalization (international diversification) and diversification across industries (product diversification) through mergers and acquisitions (M&As) on the firm’s risk-return profile. Drawing on the theoretical work of Vachani (1991) and Rugman and Verbeke’s (2004) metrics, we classify firms according to their degree of product diversification and global reach. These two dimensions at the firm-level are moderators for the performance–expansion relationship. To account for the endogeneity of market entry decisions, we develop a panel vector autoregression. We show that global and host-triad multinational enterprises (MNEs) benefit from cross-border M&As, which reinforces their geographic footprint. In contrast to all other types of firms, home-triad firms exhibit higher firm value without a change in risk when conducting cross-industry M&As. This effect, however, depends on the degree of product diversification. For home-triad firms with a small product range engaging in cross- industry transactions is a value-enhancing growth strategy.

The relevance to international mergers of the ethical perspectives of participants

International mergers are becoming more widespread among medium-sized companies that for decades have held a prime position in their home country market, but who now feel threatened that they may not be of a significant size to continue to be viable in the international marketplace. The purpose of this paper is to examine the merger of one Australian company and one of its former competitors in the international marketplace from the perspective of the congruence between their espoused ethical cultures in business prior to the merger. A questionnaire comprising 46 questions was sent to the public relations manager of each organization prior to the merger. These managers were asked to fill in the questionnaire and to provide a copy of their code of ethics. The research found that organizations need to not only have a code of ethics, but also need to focus especially on the area of code augmentation to ensure that they communicate the ethos of their code to their employees.

The potential for improving intra-organizational communication in the process of mergers and acquisitions via accounting systems

As the number of mergers and acquisitions (M&A) continues to increase on a global basis, more managers are called upon to develop their M&A transition skills. While, undoubtedly, organizations realise the importance of good communications for successful implementation of change programs throughout the entire M&A process, they often find it hard to make this communication both constant and lucid. The article argues that accounting systems display the potential for improving intra-organizational communication by infusing managers and 'non-accountants' with a common financial vocabulary for communication and 'reading' the state of the business.

Dynamic due diligence : an entrepreneurial business planning method for evaluating mergers and acquisitions: theory, case application and general implications

This paper presents a method for conducting dynamic due diligence to evaluate Mergers and Acquisitions; demonstrates its effectiveness in a particular case; and extrapolates its theoretical and practical implications to the general case. It may be called the ‘ECIPP’ method - an acronym for: Establishing mandates; Creating projections; Identifying issues; Prioritizing procedures and Performing them.

Two established alternative due diligence methods are examined. The prevailing finance-theory-based procedure has the virtues of simplicity and elegance; the vice is abstraction. The prevailing practitioner-based regime has the virtues of thoroughness and concreteness but the vices of rigidity and inefficiency. Resolving the tradeoffs inherent in both static prescriptions provides an opportunity for a dynamic, innovative approach derived from grounded theory and an application of Hindle’s (1993) theory of venture renaissance through application of an enhanced paradigm of Entrepreneurial Business Planning. The ECIPP method retains simplicity, concreteness and thoroughness but eliminates abstraction, rigidity and inefficiency.

This is demonstrated in a case. ChildCo’s CEO had only one month to complete his M&A evaluation; no expertise or previous experience; severely limited budget for the exercise and had been flatly informed by prevailing M&A experts that what he wanted could not be done. Using the ECIPP method, the CEO and the author did it: on time, within budget and to the satisfaction of a previously skeptical board of one of the world’s largest multi-national companies including arguably the world’s most professional corporate M&A division.

The replicability logic of the case research permits two generalisations. (1) ECIPP extends the range and utility of Entrepreneurial Business Planning as a management technology, well beyond the constraints to which it is usually confined. (2) The ECIPP method of dynamic due diligence is an innovation worthy of mature consideration and further investigation by theorists and practitioners in the M&A field, in the disciplines of both Finance and Entrepreneurship and, well beyond, in the realms of general management theory, methodology and practice.

REIT mergers and acquisitions : a meta-analysis

Purpose – Mergers and acquisitions in the real estate investment trust (REIT) sector have been studied in distinct periods and locations, often leading to findings which are relevant only for the period and/or location investigated. The purpose of this paper is to examine the merger and acquisition studies in aggregate using meta-analysis so that broader findings of factors influencing the returns by targets and bidders are divulged.

Design/methodology/approach – Using a methodology similar to Veld and Veld-Merkoulova a sample of 15 REIT studies with 35 observations for bidders and 25 observations for targets is analysed. A variety of potential factors influencing the returns for bidders and targets are explored.

Findings – Consistent with prior non-REIT research, the evidence shows targets enjoy positive and significant gains in a merger. There is also evidence that acquirers earn significant wealth when all previous studies are examined in aggregate. Meta-analysis results show targets experience higher wealth gains by accepting cash financed deals, but share total gains when both parties are REITs. Additionally, acquirers enjoy improved abnormal returns when the target is privately listed and the use of scrip and/or a combination of scrip and cash produces higher wealth gains for bidding REITs.

Originality/value – This paper aggregates the merger and acquisition literature of REITs to understand better factors influencing returns made by bidders and targets.