Mergers & Acquisitions in Practice: The Road to Success for High-Tech Firms

Abstract

In the last decade, Mergers and Acquisitions (M&A) activity steadily enlarged, where global deal making continues to rise. While the M&A activity is increasing, it is the technology sector with the fastest growing number of transitions. Even though M&A are widely used for financial research purposes, there is plenty yet to be uncovered, particularly on an aggregate level and privately held high-tech firms. Europe offer a natural lab- oratory to study the determinant and consequences of mergers and acquisitions given essential variations in laws and regulations, institutions, traditions, and economic environments across countries, continents and over time. Interestingly, novel data has become recently available meaning that we can see how privately held target firms in Europe behave before and after the takeover.
This thesis report focuses on understanding whether M&A affect target firm’s performance. The analysis is conducted on 689 European high-tech target firms, in which 95.26% are privately held, that were acquired in the period from 2011 to 2017. Target firm performance changes are tested with the inclusion of four key accounting performance indicators (e.g., Return on Assets, Operating Margin, Sales Growth and Net Profit), the difference in Intellectual Property measured by the number of patent applications, and three prominent quantitative research methods (Ordinary Least Square model, the Intercept model, and the Difference-in- Difference model). Including several approaches enhances the findings, overcomes weaknesses of the individual methods and addresses endogeneity concerns.
Overall, the results clearly shows that target firms do not benefit from the M&A in terms of performance. In other words, the synergies did not benefit the target firm, whereas multiple potential M&A motives, including diversification, strategic gains, and market power did not lead to a better performance of the target firm. Interestingly, the results indicate that target firms in general tend to under perform to the adjusted con- trol group or their peer firms. The latter implies that acquired firms failed to keep up with the competition and confirm the fact that targets were in need of a way to strategically improve. Further, distinguishing evidence is found between domestic versus cross-border takeovers, whereas domestic deals outperform cross- border deals. Which proves it is easier to transfer assets between parent and subsidiary operating in the same country. Large enterprises perform better after the M&A compared to small and medium enterprises. M&A between SME are more likely to be financed with equity over debt which better process the transaction of tangible and intangible asset what could be in favour of the synergy exploitation’s. Also, findings suggest that large firm are more capable to exploit economies of scope and economies of scale.
Firms that enclose a medium or high cultural distance outperform low cultural distance deals an not vice versa. This suggests that, taking into account the fact that bordering countries have similar cultural characteristics, greater cultural dimension between firms expose significant growth opportunities. Precisely be- cause long-distance target firms tend to have benefited substantially from the diffusion of the acquiring firms’ know-how, while taking into account that management and organisational styles are obviously significantly different between the two firms. In addition, target firms from the Anglo-Saxon region outperform target firms from the Rhineland region. Firms with an Anglo-Saxon corporate governance orientated firms conversely, are more likely to adopt strategic innovate projects on exploitation and external development. Whereas Rhineland corporate governance are more likely to adopt internal growth and exploratory as strategic renewal trajectories. Further, no compelling differences in performance are found for M&A in the same industry than across industries. In general, the findings presented in this paper provide new insights, while it also complements existing evidence, and on the other hand it contradicts former claims.