Disentangling the Complexity of Early-Stage Technology Acquisitions

While tools have been developed to assist firms' decision making for bringing known products and components into the supply chain, fewer tools are available to guide the acquisition of earlier-stage technologies, which is a riskier proposition due to higher technological and market uncertainties. Through synthesis of literature in technology sourcing, open innovation, alliances, mergers and acquisitions, outsourcing, and technology and knowledge transfer and consultation with industry, this paper identifies critical issues that decision makers should consider before making an early-stage technology acquisition. Sixteen questions emerge to guide decision making, comprising internal, technology, and partner assessments. These questions allow a firm to disentangle the complexity of early-stage technology acquisitions and select the most appropriate targets.

Empirical Evidence on Relationships between Ex Ante Innovation Pursuit and Post-M&A Performance in the Vietnamese M&A Industry, 2005-2012

This research aims to communicate new results of empirical investigations to learn about the relationship between determination of controlling an acquired firm’s capital, assets and brand versus its capability of innovation and ex post performance of the rising Vietnamese M&A industry in the 2005-2012 period. The analysis employs a categorical data sample, consisting of 212 M&A cases reported by various information sources, and performs a number of logistic regressions with significant results as follows. Firstly, the overall relationship between pre-M&A pursuit’s determination on acquiring resources and performance of the post-M&A performance is found significant. There exist profound effects of a ‘size matters’ strategy in M&A ex post performance. When there is an overwhelming ‘resources acquiring’ strategy, the innovation factor’s explanatory power becomes negligible. Secondly, for negative performance of post-M&A operations, the emphasis on both capital base and asset size, and the brand value at the time of the M&A pursuit is the major explanation in the post-M&A period. So does the absence of innovation as a goal in the pre-M&A period. These two insights together are useful in careful M&A planning. Lastly, expensive pre-M&A expenditures tend to adversely affect the post-M&A performance. As a general conclusion, this study shows that innovation can be an important factor to pursue in M&A transitions, together with the need to emphasize and find capable and willing human capital, rather than a capital base (equity or debt) and existing values of the acquired brands.

Evolution of Organisational Structure and Capabilities in Internationalising Banks: The CEE Operations of UniCredit's Vienna Office

Cross-border integration is the central management issue for banks that expand internationally, and this is especially true in Central and Eastern Europe, where the pace of internationalisation through mergers and acquisitions has been rapid. A critical challenge in cross-border integration is aligning a multinational company's formal organizational structure with the distribution of capabilities across its subsidiary units, and this issue is explored by tracking the co-evolution of organizational structure and capabilities during the internationalisation of a large banking network into this region. Our focus is the Vienna head office of Bank Austria Creditanstalt, which was acquired first by HypoVereinsbank (Germany) and then UniCredit (Italy). Despite its formal role being downgraded during these changes, the unit continued to develop its distinctive capabilities. The key insight our article offers is that managing cross-border integration is not simply about recognizing the value of the distinctive capabilities of individual units and designing formal structures that successfully align with them. It is also about understanding the need for dynamic interaction between formal corporate structure and individual units' desires to retain power and influence, which have significant implications for the development of their organizational capabilities.

The motives and performance of cross-border acquirers from emerging economies: Comparison between Chinese and Indian firms

During the recent decade, the world has witnessed the rapid growth of MNEs from emerging economies. Their increasing participation in cross-border mergers and acquisitions has raised great attention in the extant literature. This study evaluates the value creation from these cross-border transactions from two representative emerging countries, namely China and India, and determines factors that result in the different performance of these international acquisition activities. Cross-border acquisitions conducted by these countries’ companies indeed lead to significant shareholder wealth creation. Furthermore, Indian shareholders are more likely to benefit from deals in small cultural distance countries, while Chinese investors gain from the cross-border expansion of manufacturing companies. Location also affects the performance of cross-border acquisitions, with acquisitions into developed countries generating higher returns to shareholders. Our sample consists of 203 Indian and 63 Chinese cross-border deals over the period 2000–2010 and our results hold after controlling for various deal-level and firm-level characteristics.

THE U.S. and European M&A cycles: A Markov switching and state space approach

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Finance from the NOVA – School of Business and Economics

Spinoffs and other entrants: Evidence from Portugal

This thesis studies the prevalence and survival of spinoff entrants in Portugal from 1987 to 2008. Information on worker flows is used to identify them at a population level, providing evidence on other operations such as mergers and acquisitions. We show that the number of spinoffs has been increasing at a higher rate than other entrants of comparable size. Studying the determinants of their exit suggests that the most important predictor is whether the spinoff was motivated by the failure of the parent firm. The effect of industry specific knowledge and previous experience of the founders from working together in the parent firm is seemingly negligible, with only weak evidence supporting the latter.

Building from scratch a marketing services giant by acquisition: case study and interview with Sir Martin Sorrell, Chief Executive of WPP

Purpose – Mergers and acquisitions are among the most intensely used strategic decisions. Yet research by both academics and consulting groups suggests that many mergers and acquisitions fail to add value. On the other hand there are many companies that successfully use mergers and acquisition to grow and add shareholder value. One such company is WPP. The aim of this paper is to explore why WPP has been successful in its acquisition strategy while so many other companies fail. Design/methodology/approach – The paper draws on documentary evidence and a semi-structured interview with Sir Martin Sorrell – Chief Executive and founder of WPP. Research limitations/implications – The case study offers a unique insight into thinking of a successful acquirer and sheds light on how mergers and acquisitions are managed by WPP. However, because of its design the findings are not generalisable. Originality/value – This case study sheds light on how mergers and acquisitions can be used to create a £9 billion company from a standing start. Furthermore, very few case studies offer insight into the thinking of entrepreneurial Chief Executives who established the business, grew it to become the largest and most profitable marketing services company in the world and engineered close to 300 acquisitions.

Nexus between contracting and construction professional service businesses: empirical evidence from international market

he construction market around the world has witnessed the growing eminence of construction professional services (CPSs), such as urban planning, architecture, engineering, and consultancy, while the traditional contracting sector remains strong. Nowadays, it is not uncommon to see a design firm taking over the work of a traditional main contractor, or vice versa, of overseeing the delivery of a project. Although the two sectors of contracting and CPS share the same purpose of materializing the built environment, they are as different as they are interrelated. Much has been mentioned about the nexus between the two but little has been done to articulate it using empirical evidence. This study examined the nexus between contracting and CPS businesses by offering and testing lead-lag effects between the two sectors in the international market. A longitudinal panel data composed of 23 top international contractors and CPS firms was adopted. Surprisingly, results of the panel data analyses show that CPS business does not have a significant positive causal effect on contracting as a downstream business, and vice versa. CPS and contracting subsidiaries, although within the same company, do not necessarily form a consortium to undertake the same project; rather, they often collaborate with other CPS or contracting counterparts to undertake projects. This paper provides valuable insights into the sophisticated nexus between contracting and CPS in the international construction market. It will support business executives’ rational decision making for selecting proper contracting or CPS allies, or a proper mergers and acquisitions strategy in the international market. The paper also provides a fresh perspective through which researchers can better investigate the diversification strategies adopted by international contracting and CPS firms.

The privatisation experience in the Australian banking and insurance sectors: an explanation of the change in ownership structures

Deregulation has been a feature of the evolution of financial markets in the past two decades. Extending this trend has been the move to privatise government-owned financial institutions. In the 1990s, Australian governments progressively sold publicly owned banks and insurance institutions. One outcome has been that few of these privatised financial firms exist today, having been absorbed in mergers and acquisitions within the financial services sector. This paper uses an information cost framework to explain the experience of privatised banks and insurers. Our approach points to a dynamic process of organisational change that has influenced the outcomes of privatisation in the financial services sector.

A-REIT bidder returns : an evaluation of public and private targets and method of payment

This study examines the wealth effects of fifty-six Australian Real Estate Investment Trusts (A-REITS) acquirers around the announcement date of a merger and acquisition over the period of 1996 to 2010. This study extends Ratcliffe et al (2009) by examining mergers and acquisitions of private entity targets as well as public targets and confirms recent US REIT work in this field. Utilising event study methodology we find that bidding A-REITs earn positive and significant cumulative abnormal returns (CARs) of +0.966% around the three-day announcement period [-1, +1]. Analysis also indicates bidding firms earn higher CARs when the acquisition is financed by scrip and/or a combination of scrip and cash. Consistent with prior REIT research, event study results show that A-REIT acquirers earn higher excess returns when the target is private as compared to a public target, +2.834% and +0.457% respectively. Further investigation, employing regression analysis, shows book-to-market ratio has a negative impact on bidding firms CARs, suggesting that investors penalise high book-to-market A-REITs in an M&A due to their higher risk characteristics. We also find that both specialisation by property type and relative size of the bidder compared to the target has a positive and significant influence on bidder excess returns. Finally, our results show support for the method of payment findings in the event study, with method of payment returning a negative and significant impact on the bidder CARs.

An investigation into the drivers of Australian REIT merger and acquisition announcements

Purpose – The purpose of this paper is to use Australian Real Estate Investment Trust (A-REIT) data to empirically examine potential influencing factors on A-REITs becoming a bidder or a target in the mergers and acquisitions (M&A) area.

Design/methodology/approach – This study uses logistic regression analysis to investigate the odds of publically traded A-REITs being either a bidder or a target as a function of a number of financial and corporate governance variables.

Findings – Prior research in the US REIT M&A area has shown that target size is inversely related to takeover likelihood; in contrast, the authors’ Australian results show that size has a positive impact. Prior research on share price and asset performance has shown that underperformance increases the odds of an entity becoming a target, but this paper’s results further support these findings and provide confirmation of the inefficient management hypothesis. For acquirers it was found that leverage, cash balances, management structure, the level of shares held by related parties and the global financial crisis have an important impact on bidder likelihood.

Practical implications – Given that the literature suggests that investors can earn significant positive abnormal returns by owning targets, but incur significant abnormal losses by owning bidders, at announcement, this study will be useful to fund managers and other investors in A-REITs by investigating the characteristics of those firms that become targets and bidders.

Originality/value – This paper adds to the recent US REIT M&A literature by examining the second biggest REIT market in the world and reporting a number of factors that might influence A-REITs to become targets or bidders.