Cross-border Mergers and Acquisitions

Transcription

1 Cross-border Mergers and Acquisitions

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3 Cross-border Mergers and Acquisitions Theory and Empirical Evidence Ottorino Morresi and Alberto Pezzi

4 cross-border mergers and acquisitions Copyright Ottorino Morresi and Alberto Pezzi, Softcover reprint of the hardcover 1st edition All rights reserved. First published in 2014 by PALGRAVE MACMILLAN in the United States a division of St. Martin s Press LLC, 175 Fifth Avenue, New York, NY Where this book is distributed in the UK, Europe and the rest of the World, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number , of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave and Macmillan are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN ISBN (ebook) DOI / Library of Congress Cataloging-in-Publication Data Morresi, Ottorino. Cross-border mergers and acquisitions : theory and empirical evidence / Ottorino Morresi, Alberto Pezzi. pages cm Summary: The book describes the relevance of cross-border mergers and acquisitions (M&As) in terms of economical, geographical, and historical impact and provides the reader with a complete guide to understanding the main concepts, theories, and empirical results of cross-border M&As Provided by publisher. Includes bibliographical references and index. ISBN (hardback) 1. Consolidation and merger of corporations. I. Pezzi, Alberto. II. Title. HG4028.M4.M dc A catalogue record of the book is available from the British Library. Design by Integra Software Services First edition: November

5 To my mom, for her endless patience and support Ottorino Morresi To my princesses Flavia and Giulia Alberto Pezzi

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7 Contents List of Figures List of Tables Preface Acknowledgments 1 The M&A Phenomenon 1 2 Cross-border M&As: Theory and Strategic Process 85 3 Cross-border M&As and Performance: Empirical Evidence Cross-border M&As and Stock Market Performance: Evidence from Medium-Sized US and European Firms 191 Index 231 ix xi xiii xvii

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9 Figures 1.1 Ratio of value offered to number of transactions Choice of entry mode Main advantages and disadvantages of acquisitions and greenfield investments A framework for evaluating entry and development strategies Potential alternatives within the export option A sequence of steps to select country of destination alternatives Principal key location factors 113

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11 Tables 1.1 Worldwide deal market: A summary Regional distribution of capital flows Historical overview of M&A transactions (number and value) Historical overview of M&A transactions: method of payment, P/E offered, and premium offered Cross-border M&As Largest high-profile cross-border deals of all time Largest high-profile cross-border deals of all time involving US target firms Largest high-profile cross-border deals of all time involving US acquiring firms Largest high-profile cross-border deals of all time outside the US Cross-border M&A purchases by country of buyer (US$ billion) developed Europe Cross-border M&A purchases by country of buyer (# Deals) developed Europe Cross-border M&A purchases by country of target (US$ billion) developed countries Cross-border M&A purchases by country of target (# Deals) developed countries Cross-border takeovers by industry Cross-border M&A purchases performed by US firms targeting emerging countries (US$ million) Cross-border M&A purchases performed by US firms targeting emerging countries (# Deals) Cross-border M&A purchases performed by European firms targeting emerging countries (US$ million) 58

12 xii List of Tables 1.18 Cross-border M&A purchases performed by European firms targeting emerging countries (# Deals) Cross-border M&A purchases performed by emerging European firms (US$ million) Cross-border M&A purchases performed by emerging European firms (# Deals) Cross-border M&A purchases performed by Brazil, Russia, India, China, and South Africa (BRICS) US$ million Cross-border M&A purchases performed by Brazil, Russia, India, China, and South Africa (BRICS) # Deals Variable description Descriptive statistics Distribution of events by year of operation and country of origin Distribution of events by country of destination and country of origin Distribution of events by industry and country of origin Distribution of events by industry relatedness Distribution of events by entry mode, country of origin, and target region Event study results Determinants of value creation in Europe Determinants of value creation in the US 221

13 Preface The book provides the reader with a complete guide to understanding the main concepts, theories, and empirical results of cross-border mergers and acquisitions (M&As). Since the 1990s M&A wave, M&As have been turning into a global phenomenon with a huge increase in international deals, often exceeding the number of domestic ones. A large number of theoretical and empirical studies have focused on this topic from several perspectives: motives, strategic issues, performance, and so on. The distinctive characteristics of the book can be summarized as follows. First, it provides a unified framework that ties the huge growing number of theoretical and empirical studies on cross-border deals together. These studies are highly fragmented in terms of the issues covered and there have been only a few attempts to integrate them into a single, organized book. These works themselves often take the form of collections of articles without providing a clear thread that offers the reader an organized, articulated, and logical framework of the entire issue. Second, it overcomes a characteristic of M&A books, that of treating cross-border deals as a specific characteristic of M&As and paying little attention to the fact that they have a high number of distinctive elements that differentiate them from domestic operations. Third, it also pays attention to cross-border M&As performed by small- and medium-sized enterprises (SMEs), a point that is often overlooked by empirical studies. The book describes the relevance of the phenomenon in terms of economic, geographical, and historical impact; it explains the main theories on cross-border M&As and tries to answer the following questions, among others: why do so many firms invest abroad through M&As? How does a firm select the country of destination and the target firm? How do firms involved in cross-border M&As perform? Is M&A performance different between SMEs and large firms? What are the main determinants of M&A performance? What are the main limits and biases of empirical research on cross-border M&As?

14 xiv Preface In detail, Chapter 1 discusses domestic and international M&A activity since the early twentieth century. It describes the characteristics of each merger wave, from the first to the sixth and last movement so far, and provides an overview of the worldwide deal market together with yearly data on M&A activity involving US firms since the early 1960s. It also offers a special focus on cross-border M&As involving US, European, and emergingmarket firms and provides analytical, historical, and up-to-date information on the number, value, and distribution by industry and country of crossborder M&As from the late 1980s to It concludes with a discussion of factors that could have obstructed international M&A activity such as nationalism and antitrust rules and a discussion of alternatives to M&As. Chapter 2 analyzes the strategic process that drives the decision to enter an international market and develop the company s presence abroad through cross-border acquisitions. It seeks to examine the reasons for performing a cross-border M&A, considering three distinct but related groups of reasons: strategic motives, external shocks, and personal reasons. It then focuses on the strategic approaches adopted when selecting the country of destination in terms of assessment of the countries attractiveness and management of distance between the home country and foreign country. A range of potential drawbacks are analyzed to highlight post-acquisition problems: information asymmetries, lack of market experience, integration problems, and speed in deal closing and integration. Finally, the chapter explores the possible differences in the internationalization path in terms of speed, scope, and performance between companies from emerging countries and companies from advanced countries. Chapter 3 reviews about 70 papers published over the last 30 years that analyze the link between cross-border M&As and a firm s market- and accounting-based performance. It takes into account the performance scored by target firms, bidding firms, and combined firms in response to announcements of cross-border deals. Short-run market performance is compared with both long-run returns and accounting ratios. It also examines whether firms that invest abroad are worth more than domestic firms. The chapter explores the determinants of firm performance and focuses on internationally specific ones such as economic development and market integration of target and home country, cultural and geographic distance, corporate governance quality, and so on. It concludes with a discussion of the limits and biases of empirical research. Chapter 4 analyzes short-term market returns in response to announcements of cross-border investments performed by medium-sized US and European firms. Only a limited number of studies take the market performance of small- and medium-sized firms that make acquisitions abroad into

15 Preface xv account. Market reaction is positive and statistically significant in almost all countries but stronger in British, Italian, Belgian, and French firms, and weaker in US, Dutch, German, and Spanish firms. US firms create more value when they enter growing and emerging countries, are more indebted, acquire large firms, and use cash as a means of payment whereas European firms perform better when they invest in growing countries and in related and non-technology-based industries, acquire large stakes, have scored good past accounting performance, and use cash as a means of payment.

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17 Acknowledgments We thank Marco Manili, Andrea Cinardo, Giacomo Freccero, and Massimiliano Lunardi for their help in data collection. We are also grateful to conference participants and discussants at the 2013 AIB Special Meeting in Moscow, 2012 SFA Annual Meeting in Charleston, 2012 World Finance Conference in Rio de Janeiro, 2012 AIB Annual Meeting in Washington, 2012 EURAM Annual Meeting in Rotterdam, 2012 SMS Annual Meeting in Prague, 2010 Wolpertinger Annual Meeting in Bangor, 2010 Portuguese Finance Network Annual Meeting in Azores, 2009 Vaasa Conference on International Business in Vaasa, for helpful comments. Finally, we thank an anonymous referee for constructive suggestions to the book proposal.