M&A in ASEAN countries

Literature Review: changes in post-M&A profitability

Emerging markets

Improvement

Kumar and Bansal, 2008

Rahman and Limmack, 2004

Deterioration

Bertrand and Betschinger, 2012

Mantravadi and Reddy, 2008

Pawaskar, 2001

Developed markets

Improvement

Kruse et al., 2007

Ikeda and Doi,1983

Powell and
Stark, 2005

Parrino and Harris, 1999

Healy et all, 1992

Linn and Switzer, 2001

Switzer, 1986

Deterioration

Pazarskis et al., 2006

Yeh and Hoshino, 2002

Dickerson et al., 1997

Clark and Ofek, 1994

Franks et al., 1988

Hogarty, 1970

No significant change

Dutta and Jog, 2009

Sharma and Ho, 2002

Martynova et al., 2007

Papadakis and Thanos, 2010

Ghosh, 2001

Lev and Mandelker, 1972

Several hypotheses to
understand the underlying motivations for M&As

The ASEAN firms’ M&A in this region significantly improved its operating performance

Cash-financed M&As are likely to generate higher post-M&A operating performance (OP) than stock-financed M&As

During the crisis period, stock-financed deals are likely to negatively impact the operating performance of firms involved in M&As

Same-industry M&As are likely to positively and significantly impact the operating performance of M&As

During the crisis, same-industry M&As could have a negative impact on operating performance

Cross-border deals are likely to increase OP of firms engaged in M&As as compared to
domestic deals.

During the crisis, companies’ performance will be hurt by cross-border M&As as opposed to domestic deals.

Cash-rich firms are likely to engage in M&As that can negatively impact their OP as compared to cash-poor firms.

During the crisis, deals executed by cash-rich firms are more likely to cause a decrease in post-M&A OP

The relative size of the target is likely to have a positive impact on post-M&A OP

During the crisis, the relative size of the target will have an even stronger impact on post-M&A OP.

The percentage of target share acquired has a positive impact on post-M&A OP.

During the crisis, the percentage of target acquired will have an even stronger impact on post-M&A OP.

Friendly M&As will experience performance improvements as opposed to non-friendly deals.

During the crisis, friendly deals will experience stronger performance improvements.

Data and methodology

Sample selection

M&A activity within ASEAN countries over the period 2001-
2012

Domestic as well as cross-border transactions

Both target and bidding
firms are publicly listed companies

The details of each transaction were extracted from the
SDC Platinum of Thomson Financial Securities Data Worldwide Mergers and Acquisitions Database

We also eliminate transactions from multiple bidders
who are involved in more than one deal over the sample period

The data includes transaction value, percentage of shares acquired and owned after
the transaction, country and industry of each bidder and target, deal attitude and mode of payment

Financial deals are excluded

Sample description

M&A activity is recorded in six ASEAN countries

Final sample of 57 M&As

Malaysia is the most prolific acquirer country (30% of deals)

A third of the takeovers are undertaken using cash only

The majority of transactions in the sample involve relatively large targets

The sample is divided between focusing (30%) and diversifying transactions (70%)

Domestic deals dominate our ASEAN sample as only 19% of
the deals involve cross-border takeovers

The level
of cash reserves is fairly distributed among deals and that M&As completed by cash-rich bidders are not uncommon.

There is an equal distribution between majority deals where
bidders end up owning more than 50% of the target and minority deals where less than 50%
of the target is controlled after the M&A

The sample are split into three sub-periods

Pre-crisis includes M&As completed from 2004 to 2006

Crisis includes transactions from 2007 and 2008

Post-crisis comprises deals in 2009

75% of ASEAN deals are friendly

Results: change in operating performance

M&As in ASEAN countries have a detrimental impact on
both raw performance and adjusted performance of merging firms

Merging firms significantly outperform their respective industry benchmark before the M&A

Firms in ASEAN countries are likely to engage in M&As during a period when they experience a superior level of OP relative to
the industry.

Merging firms continue to retain a higher level of performance but to a smaller extent

Deal characteristics

The adjusted profitability does not differ significantly between cash-financed and stock-financed M&As

Focusing M&As are not able to generate more
synergistic benefits for merging firms than diversifying ones

The change in OP is statistically the same between small and large targets

Geographic scope of business expansion does not help explain the sequent changes in post-M&A performance in ASEAN

The change in OP does not significantly differ for cash-rich and cash-poor companies

Results for the percentage acquired do not provide any evidence that majority deals significantly outperform minority deals

Post-crisis M&As
benefited from a higher increase in performance than pre-crisis transactions

Takeovers during the crisis were associated with a significant increase in sales margin

Cross-sectional analysis

Pre-M&A OP has a strong
and positive impact on post-M&A performance

During bad economic times, ASEAN firms should concentrate on diversifying M&As within their own borders

During crisis, a large amount of
cash holding is particularly detrimental for acquirers

ASEAN firms are able to generate extra performance
from friendly M&As with large targets only during the crisis period