PURPOSE OF THE STUDY
The purpose of my study is to increase present knowledge on the acquirer’s post-deal performance, which, although widely studied, has yet to reach scientific consensus on its success from acquirer’s perspective. More precisely, I focus on the development of acquirer’s return on equity and analyse which explains the alleged changes by breaking RoE down into components of net profit margin, asset turnover and leverage by using DuPont equation. This thesis helps to understand the diverse effects of mergers and acquisitions in general as well as adds to the narrow literature on Finland’s M&A environment.
DATA AND METHODOLOGY
I use data on Finnish companies received from Asiakastieto. I construct datasets for both non-merging companies and merging companies, which I combine with financial data. I then execute nonparametric tests to compare the performance of non-acquiring companies to the acquirers. Additionally, I analyse the relative explanatory power of each RoE component in explaining the alleged changes in acquirer’s RoE. In total, I examine the pre- and post-merger performance of 270 acquirers in mergers occurred in Finland between 2006 and 2011.
RESULTS
I find significant and strong results of acquirers’ poorer RoE development in comparison to non-acquiring peer companies in the years following a merger. Moreover, I find that most of the post-merger performance gap between acquirers and non-acquirers can be explained by acquirers’ significantly weakening net profit margin following mergers. Interestingly, acquirers’ operational underperformance seems to be long-term as the phenomenon is significant also at the end of the observation period. Although the gap in net profit margin between the two groups explains most of difference in RoE development, mergers seem to increase also the asset inefficiency of acquirers. However, contrary to net profit margin, asset inefficiency seems to peak immediately in the next year following a merger. Acquirers are significantly more leveraged than non-acquirers are during the whole observation period, but this has only a limited explanatory power over the observed differences in the RoE development of the two groups
