106 research outputs found
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How, and when, to catch a falling knife: The Benefits, Risks, and Timing Issues Around Distressed M&A
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Playing the long game: Do certain financial advisors in the UK bring longer term value to the M&A table?
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'Hedge Funds: Stock Pickers or Managers?
For decades, corporate managers have criticised analysts, fund managers, hedge fund managers and private equity professionals for telling them how to run their business, wihout having had the necessary experience. Now hedge fund activists are regularly suggesting operational decisions, and in some cases even in areas traditionally reserved for management. ‘Activism has gone from being frowned upon, something that marks you out as a rogue or maverick, to almost socially responsible.’1 These hedge funds may have become an accepted part of the governance universe but are they actually adding value?
Recent studies have answered this question in the affirmative, but what if those companies picked out by hedge funds for their attention were already on their way to outperformance? The observed outperformance may not be due to a hedge fund’s ability to contribute to value creation but a mere reflection of their stock picking abilities. The difficulty is in identifying those companies that would have made typical hedge fund targets but which were not actually targeted, i.e. build an appropriate group of comparable companies. We have developed a statistical model to identify just these companies
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Does the Early Bird Always get the Worm?
M&A can be motivated by many different things and it is not unnatural to believe that these motivations could be dependent on where we are in the M&A cycle. By extension if we believe that different motivations lead to different ‘success’ rates then there could be different success rates at different points in the cycle. This is the topic of this report.
First movers have historically been feted for their strategic motivations in pursuing M&A and the advantages gained from moving early, such as the availability of attractive targets. In contrast, late followers have been characterised as firms that exemplify irrational behaviour as they are compelled by competitive pressures to mimic the actions of their rivals without a logical rationale for the motivations underlying the M&A announcement.
We set out to test this simplistic view and in this report we tested the difference in performance between first movers and late followers using a sample of global M&A deals for two periods, Wave 1 (1990-2002) and Wave 2 (2003-2009).
We found considerable evidence that this simplistic view may not be correct, with our so called ‘late followers’ at least as successful as the ‘first movers’.
Before we highlight some relevant practical findings for practitioners we will also show that there may be something different about the latest M&A wave. There are certain features of this second wave (notably the prevalence of cross-border M&A) that may make first mover advantage less prevalent. In addition, insight from literature in other fields may be casting those first movers in a less unreservedly flattering light, which should give managements pause in their attempts to be the first to acquire.
We conclude:
- It’s not too late. If you find a compelling M&A opportunity but you feel others have invested in that area already, it’s not necessarily a bad thing.
- Something’s changed in the latest wave The M&A market is becoming more about new geographies and opportunities, deals where the more you know before you proceed, the better.
- M&A can and does add value Unavoidably, we looked at the data and saw a generally positive reaction to acquisitions, regardless of which end of the ‘wave’ we are at.
And perhaps, judging by the positive reception given by the market to both our first movers and late followers, we must conclude that you don’t want to be caught in the middle.
In M&A, unlike nature, the early bird may not always get the worm
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Naked M&A Transactions: How the Lack of Local Expertise in Cross-Border Deals Can Negatively Affect Acquirer Performance - and How Informed Institutional Investors can Mitigate This Effect
This paper tests how informed investors with local expertise can affect cross-border deal success using a comprehensive dataset of corporate acquirers’ share registers. We posit that deals in which long-term investors have a high level of expertise in the target firm's region are more likely to perform better than if the deal is ‘naked’, i.e., when such regional expertise amongst the investors is low. We show that the strength of this effect depends upon an index of country-level M&A maturity which measures the relative divergence between acquirer and target countries. Specifically, we investigate whether acquirers investing in countries with low M&A maturity gain greater benefit from investors with regional expertise. We present evidence which confirms the hypothesis that acquirers in cross-border corporate transactions are more likely to be successful if the acquirer's investors have a higher level of expertise in the target region, and that this effect is strongest when the maturity for corporate transactions of the target country is low. This provides a specific setting which is consistent with earlier theoretical work that argues in general that information flows should not just be from firms to capital markets but also in the opposite direction, and that this flow of information is particularly important whenever information is dispersed
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Allocative Efficiency of Internal Capital Markets: Evidence from Equity Carve-outs by Diversified Firms
We examine whether equity carve-outs (ECOs) lead to improvements in the functioning of the internal capital markets (ICM) of diversified firms. Divestments, including spin-offs, sell-offs and ECOs, can be employed by firms to improve allocative efficiency. Equity carve-outs, unlike spin-offs and sell-offs, leave the parent’s ICM intact but provide the opportunity to enhance internal and external corporate governance mechanisms. Using a US sample of 354 ECOs completed between 1980 and 2013, we find that the allocative efficiency of parents is augmented significantly following ECOs. This increase in allocative efficiency is driven by improvements in the governance characteristics of parent companies
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