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