Mergers and Acquisitions Overpayment and Synergy: Examining the Influences of Economic Crisis

Purpose:

This study advances the knowledge of mergers and acquisitions (M&As) by examining changes in M&As decisions on premium payments and their impact on acquisition synergy during the post-global financial crisis (GFC). The research contributes to knowledge on changes in M&As premiums and synergies in response to the GFC. This study investigates the impact of management decisions on factors such as the relative size of acquisition, payment methods, and target boundaries that affect premiums and synergistic outcomes in the post-GFC era.

Design/Methodology:

The study adopts a quantitative research methodology within a positivist paradigm. It employs a deductive approach to test hypotheses using secondary data collected from the Bloomberg database, London Stock Exchange websites, and acquiring companies' annual reports. A total of 225 successful M&As deals by UK-listed firms between 2005 and 2018 are analysed. The study uses a combination of statistical techniques, including independent samples t-tests to compare group differences, multiple regression analysis to examine relationships between variables, and structural equation modelling (SEM) to explore complex causal pathways. These methods are applied to evaluate the influence of acquisition characteristics and CEO narcissism indicators on premium size and post-acquisition synergy.

Findings:

The study uncovers four key findings to respond to four hypotheses of the study, and the findings are as follows:

• Acquisition premiums have increased post-GFC, with cash acquisitions, smaller relative size acquisitions, and cross-border transactions consistently exhibiting larger premiums post-GFC.
• The low-premium acquirers consistently outperform their high-premium counterparts; this is exclusive to the post-GFC, where the performance gap widened, and the low-premium group consistently generated positive returns and outperformed the high-premium group, which contrastingly generated negative returns.
• UK acquirers show a decline in cumulative abnormal returns (CAR) up to twenty-four months post-completion, followed by a significant recovery within thirty-six months. Post-GFC acquirers experience better post-completion abnormal stock returns compared to pre-GFC acquirers, with cash acquisitions and cross-border transactions seeing the most pronounced improvements.
• Narcissistic indicators do not statistically impact premium size, whereas indicators such as CEO photo size and use of first-person pronouns negatively impact the CARs of acquirers.

Implications:

The research provides managers, practitioners, and policymakers with a deeper understanding of M&As decisions during times of financial squeeze. It alerts the manager to reassess premium payment sizes in line with the relative size of the acquisition, payment choice, and whether to acquire domestic or cross-border targets, particularly during the period following economic crises.