Choice of Payment in German Mergers and Acquisitions. An Empirical Analysis of Bidder-Acquisition and Business Cycles

Table of Contents

1 INTRODUCTION

1.1 THE GERMAN MERGERS AND ACQUISITIONS MARKET

1.2 PROBLEM DEFINITION

2 FUNDAMENTALS AND THEORETICAL BACKGROUND

2.1 MERGERS AND ACQUISITIONS

2.2 MERGERS AND ACQUISITIONS TRANSACTION PROCESS

2.3 PAYMENT METHODS

2.3.1 CASH PAYMENTS

2.3.2 SHARE PAYMENTS

2.3.3 MIXED PAYMENTS

2.3.4 OTHER PAYMENTS

2.3.5 METHOD OF PAYMENT VS. MODE OF FINANCING

2.4 THEORETICAL BACKGROUND OF THE PAYMENT METHOD

2.4.1 ASYMMETRIC INFORMATION

2.4.2 TAXATION

3 LITERATURE REVIEW AND HYPOTHESES

3.1 CHARACTERISTICS OF THE BIDDER

3.1.1 CORPORATE CONTROL HYPOTHESES

3.1.2 FINANCIAL LEVERAGE HYPOTHESIS

3.1.3 DEBT CAPACITY HYPOTHESES

3.1.4 CASH AVAILABILITY HYPOTHESIS

3.1.5 RELATIVE SIZE HYPOTHESIS

3.1.6 INVESTMENT OPPORTUNITIES HYPOTHESIS

3.1.7 STOCK PERFORMANCE HYPOTHESIS

3.2 CHARACTERISTICS OF THE ACQUISITION

3.2.1 CROSS-BORDER HYPOTHESIS

3.2.2 CROSS-INDUSTRY HYPOTHESIS

3.2.3 UNLISTED TARGET HYPOTHESIS

3.3 CHARACTERISTICS OF THE BUSINESS CYCLE

3.3.1 MARKET PERFORMANCE HYPOTHESIS

3.4 OVERVIEW OF HYPOTHESES

4 DATA AND DESCRIPTIVE STATISTICS

4.1 DATA

4.2 DESCRIPTIVE STATISTICS

5 METHODOLOGY

5.1 BINARY LOGISTIC REGRESSION

5.2 MULTINOMIAL LOGISTIC REGRESSION

5.3 PRECONDITIONS FOR THE LOGISTIC REGRESSION

6 RESULTS

6.1 BINARY LOGISTIC REGRESSION

6.1.1 CASH PAYMENTS VS. SHARE PAYMENTS

6.1.2 CASH PAYMENTS VS. MIXED PAYMENTS

6.1.3 SHARE PAYMENTS VS. MIXED PAYMENTS

6.2 MULTINOMIAL LOGISTIC REGRESSION

6.3 CRITICAL REFLECTION

7 CONCLUSION

Research Objectives and Core Themes

The primary research objective is to identify the most influential determinants of the payment method in German M&A transactions, focusing specifically on bidder, acquisition, and business cycle characteristics. The central research question investigates how these specific factors influence the likelihood of a deal being settled via cash, stock, or a mix of both.

• Bidder-specific characteristics, including corporate control, leverage, and cash availability.
• The influence of acquisition attributes like cross-border nature, industry differences, and target listing status.
• The impact of broader business cycle phases and market performance on financing choices.
• An empirical analysis of 207 German acquisitions conducted between 2003 and 2010.
• A comparative assessment of binary and multinomial logistic regression models to identify significant drivers of payment method selection.

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Summary of Chapters

1 INTRODUCTION: Outlines the significance of payment method choice in M&A and details the development of the German M&A market from 1985 to date.

2 FUNDAMENTALS AND THEORETICAL BACKGROUND: Defines M&A, describes various payment methods, and introduces theories like asymmetric information and taxation as drivers of payment choice.

3 LITERATURE REVIEW AND HYPOTHESES: Reviews previous empirical literature on M&A payment methods and establishes fourteen specific, testable hypotheses regarding bidder, acquisition, and business cycle characteristics.

4 DATA AND DESCRIPTIVE STATISTICS: Describes the data collection process from 207 German acquisitions and provides an analysis of the sample statistics.

5 METHODOLOGY: Explains the statistical models used, specifically binary and multinomial logistic regressions, and the preconditions for these models.

6 RESULTS: Presents and discusses the findings from the regression analyses, assessing the significance of various independent variables on the chosen payment methods.

7 CONCLUSION: Summarizes the key empirical findings, reflects on the research limitations, and evaluates the validity of the tested theories within the German context.

Keywords

Mergers and Acquisitions, M&A, Payment Method, Cash Payments, Share Payments, Mixed Payments, German M&A Market, Bidder Characteristics, Logistic Regression, Corporate Control, Asymmetric Information, Taxation, Financial Leverage, Debt Capacity, Business Cycle.

Frequently Asked Questions

What is the core focus of this thesis?

This thesis investigates the determinants of payment methods in German mergers and acquisitions. It specifically aims to identify which bidder, acquisition, and business cycle characteristics influence whether a transaction is paid for with cash, shares, or a combination of both.

Which theoretical frameworks are used to explain payment choice?

The work primarily relies on the theories of asymmetric information, taxation, agency costs, and the pecking order theory, as established in international literature, to construct hypotheses regarding payment preferences.

What is the main research question?

The research seeks to answer which specific factors—such as a bidder’s leverage, cash holdings, or the target’s listing status—are most influential in determining the choice of payment method within the German M&A market.

What research methodology is applied?

The author uses empirical, quantitative methods. Specifically, binary logistic regression models and multinomial logistic regression models are employed to analyze a dataset of 207 German acquisitions from 2003 to 2010.

What does the main body of the work cover?

The core of the thesis provides a literature review, the derivation of 14 distinct hypotheses, a detailed data collection description, and a rigorous statistical analysis of those hypotheses using logistic regression techniques.

Which keywords best describe this study?

The key themes are Mergers and Acquisitions, payment method selection, German capital markets, and financial determinants such as corporate control, financial leverage, and growth opportunities.

How do German companies differ from US companies in M&A payment?

The thesis notes that the choice of payment in German M&A often differs from US findings, specifically highlighting the significance of the bidder’s financial condition and corporate control concerns, which are identified as highly influential in the German context.

How does the author treat "method of payment" versus "mode of financing"?

While acknowledging they are technically different, the author chooses to treat these terms as synonymous for the purposes of this study due to a lack of reliable, granular data on the specific mode of financing for the observed transactions.