The Measurement of Post Deal Performance. An Empirical Analysis of European M&A Transactions

Table of Contents

1. Introduction

2. Literature Review

2.1 Accounting Measures

2.1.1 Ratios

2.1.2 Growth measures

2.1.3 Operating Cash Flows

2.2 Abnormal Returns

2.3 Other Measures

2.4 Measure Comparison

3. Empirical Analysis: European M&A Transactions

3.1 Research Design

3.1.1 Sample

3.1.2 Model

3.1.3 Variables

3.2 Results

4. Discussion

5. Conclusion

Research Objectives and Key Topics

The primary objective of this thesis is to contribute to the debate on post-merger performance measurement by systematically identifying, describing, and empirically applying various performance metrics to a consistent dataset of European M&A transactions. The research investigates how different choices of performance indicators—specifically accounting versus market-based measures—influence the assessed success or failure of M&A deals.

• The influence of performance measure selection on M&A outcomes
• Classification and critical review of accounting and market-based metrics
• Empirical analysis of 649 European M&A transactions using cross-sectional regression
• Evaluation of post-deal success rates across diverse quantitative indicators
• Comparison of accounting distortions and market-adjusted returns

Excerpt from the Book

Summary of Chapters

1. Introduction: This chapter establishes the high failure rate of M&A deals found in existing literature and introduces the research objective to analyze multiple performance measures to address existing outcome disparities.

2. Literature Review: Provides a theoretical foundation by categorizing performance metrics into accounting measures (ratios, growth, cash flows) and market measures (abnormal returns), while discussing their respective pros, cons, and biases.

3. Empirical Analysis: European M&A Transactions: Details the research methodology, sample selection of 649 European transactions, and the application of cross-sectional regression models to evaluate the effect of acquisitions on firm performance.

4. Discussion: Interprets the empirical results, highlighting how the selection of performance indicators significantly alters conclusions about M&A success and noting the lack of correlation between different metrics.

5. Conclusion: Summarizes the thesis findings, confirming a typical 50% success rate for M&A transactions while pointing out the inherent limitations of standard market and accounting benchmarks.

Keywords

Mergers and Acquisitions, Post-deal Performance, Return on Assets, Operating Cash Flow Returns, Abnormal Returns, European M&A, Performance Measurement, Empirical Analysis, Corporate Finance, Synergy, Accounting Ratios, Growth Measures, Market-adjusted Returns, Deal Success, Financial Analysis

Frequently Asked Questions

What is the core focus of this academic paper?

The paper focuses on evaluating the post-merger performance of European M&A transactions by comparing various quantitative performance measures, as the author argues that the choice of metric significantly influences whether a deal is perceived as successful or failed.

What are the primary thematic areas covered?

The research covers accounting-based performance indicators (ratios, growth measures, and operating cash flows) and market-based indicators, specifically abnormal returns, using a comparative analytical framework.

What is the central research question?

The primary objective is to investigate how different performance measures affect the reported outcome of M&A deals and to determine if these measures provide consistent results regarding transaction success.

Which scientific methodology is employed?

The author uses a quantitative methodology involving cross-sectional regression analysis to assess the impact of M&A transactions on firm performance, using pre- and post-merger data adjusted for market movements.

What does the main part of the thesis address?

The main body systematically categorizes existing literature on M&A performance measures, derives mathematical models for these metrics, and presents an empirical study based on 649 European acquisitions using Thomson Eikon data.

Which keywords best characterize this work?

Key terms include Mergers and Acquisitions, Post-deal Performance, Market-adjusted Returns, Accounting Ratios, and Empirical Analysis.

Why are accounting-based measures like ROA often criticized in this thesis?

The thesis notes that accounting measures like ROA can be distorted by the recognition of goodwill during the purchase method of accounting, which inflates assets and potentially obscures the true performance impact of the merger.

What is the author's conclusion regarding the success rate of M&A deals?

The author concludes that approximately 50% of M&A transactions result in failure, a finding that remains consistent across various performance measures despite the high ambiguity and inconsistency in how the market predicts post-deal performance.