The Performance of bidding firms in merger and acquisition (M&A) deals: an empirical investigation of public, private and subsidiary acquisitions in Australia
thesisposted on 28.02.2017, 05:03 authored by Shams, Syed Mohammod Mostofa
This thesis investigates the market reaction to acquisition announcements made by Australian bidders as well as the long-run operating performance of them using three separate samples of acquisitions: acquisitions of public, private and subsidiary targets. This study was motivated by the economic significance of acquisition activities in Australia, particularly the acquisitions of private and subsidiary targets by listed bidders. These acquisitions are important corporate investment decisions to Australian managers since they have divergent impacts on shareholders and other corporate stakeholders. The first two empirical studies of this thesis investigate the market reaction to acquisition announcements made by Australian bidding firms using large samples of domestic and foreign acquisitions for the period 2000-2010. The second empirical study examines the long-run operating performance of bidding firms. This study employs single factor, Fama-French three factor and four-factor models in generating abnormal returns when investigating the market response to acquisition announcements. It further analyses the impact of bid and firm characteristics in a multivariate setting. In addition, this study also analyses the market adjusted buy and hold returns as an alternative measure of abnormal return. The long-run operating performance is analysed using profitability and cash flow returns while controlling for the ‘industry’ and ‘industry-and-size’ benchmarks. The first empirical study examines the market reaction to acquisition announcements when bidders announce acquisitions of domestic targets. The main findings of the first empirical study of this thesis are: (i) the market reactions are positive and significant around the acquisition announcements for all three samples analysed; (ii) bidders for private and subsidiary targets earn higher abnormal returns than bidders for public targets; (iii) bidders on private targets earn higher abnormal returns when the method of payment is stock; (iv) multiple bids for public targets are penalised by the capital market while acquisitions of unlisted public targets are rewarded; (v) privately negotiated acquisitions of private targets and acquisitions of subsidiaries from listed parents for cash are associated with higher abnormal returns; (vi) acquisitions of private targets during the Global Financial Crisis (GFC) have a significant favourable effect on the wealth gains of Australian acquirers. The second empirical study investigates the market reactions when Australian bidders announce acquisitions of foreign public, private and subsidiary targets. The main findings of this study are: (i) the market reaction is positive and significant for the subsidiary targets sample only, while it is negative and insignificant for the public targets and private targets samples; (ii) bidders on private targets earn significant positive abnormal returns when they use stock as the payment method; (iii) multiple bids for private targets and acquisitions of mining subsidiaries are rewarded by the capital market; (iv) investor protection offered by the target country positively influences the abnormal returns generated by the acquirers of public targets while it is negatively related with the return earned by the bidders for subsidiary targets ; (v) acquisitions of private and subsidiary targets from civil-law based target countries are associated with negative announcement period returns; (vi) the market reaction is significantly positive when bidders acquire private targets during the period when the Australian dollar is strong; (vi) acquisitions of public targets from the US are rewarded while the acquisitions of public targets from the UK are penalised. The third empirical study examines the long-run operating performance of bidding firms following the acquisitions announcement. The main findings of this study are: (i) the long-run operating performance is positive and significant for the acquirers of private targets while it is declining for public and subsidiary targets samples; (ii) there is a negative relationship between stock-financed acquisitions and the long-run operating performance for all three samples; (iii) multiple bidders for private targets enjoy significant positive long-run operating performance; (iv) there is a negative (positive) relationship between the pre-acquisition profitability(pre-acquisition cash flow) and the long-run operating performance of bidders for public targets.