Evolution of Mergers and Acquisitions
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Added on 2020-02-18
Evolution of Mergers and Acquisitions
Added on 2020-02-18
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Running head: MERGER AND ACQUISITIONOVERSEA MERGER AND ACQUISITION CREATE VALUE FOR COMPANIESName of student:Name of University:Author note:
1OVERSEA MERGER AND ACQUISITION CREATE VALUE FOR COMPANIESTable of ContentsChapter 1: Introduction.........................................................................................................................31.1 Chapter Introduction...................................................................................................................31.2 Background to the study..............................................................................................................41.2.1 Research Problem.................................................................................................................41.2.2 Research Purpose.................................................................................................................41.2.3 Research Significance............................................................................................................51.3 Research Aims Objectives............................................................................................................51.3.1 Research Aim........................................................................................................................51.3.2 Research Objectives..............................................................................................................51.4 Research Questions.....................................................................................................................5Chapter 2: Literature Review.................................................................................................................62.1 Introduction.................................................................................................................................62.2 Evolution of Mergers and Acquisitions (M & A)...........................................................................62.3 Successful cases of mergers and acquisitions nationally and internationally..............................82.4 Exploring the Economic Values associated with Mergers and Acquisition..................................92.5 Growing number of Global Merger and Acquisition..................................................................102.6 Effect of Global M & A on Chinese Economy.............................................................................122.7 Problems faced due to M & A activities in E-commerce industries...........................................132.8 Gap of Literature........................................................................................................................132.9 Summary....................................................................................................................................13Chapter 3: Research Methodology......................................................................................................143.1 Introduction...............................................................................................................................143.2 Research Onion..........................................................................................................................143.3 Research Philosophy..................................................................................................................153.4 Research Approach....................................................................................................................163.5 Research Design.........................................................................................................................173.6 Data collection...........................................................................................................................183.7 Sampling design.........................................................................................................................203.7.1 Targeted dataset.................................................................................................................203.7.2 Sampling frame and location..............................................................................................203.7.3 Sampling Technique............................................................................................................20
2OVERSEA MERGER AND ACQUISITION CREATE VALUE FOR COMPANIES3.7.4 Sampling size......................................................................................................................213.8 Data analysis..............................................................................................................................214.0 Ethical consideration.................................................................................................................225.0 Summary....................................................................................................................................22Chapter 4 Data Analysis.......................................................................................................................234.1 Introduction...............................................................................................................................234.2 Methods used and Analysis.......................................................................................................234.2.1 Event study method................................................................................................................234.2.2 Results from event study method.......................................................................................254.2.2 Accounting method................................................................................................................28Chapter 5 Conclusion...........................................................................................................................315.1 Results obtained........................................................................................................................315.2 Limitations of study...................................................................................................................31References...........................................................................................................................................33
3OVERSEA MERGER AND ACQUISITION CREATE VALUE FOR COMPANIESChapter 1: Introduction1.1 Chapter IntroductionAlong with discretion in international trade, the number of oversea merger andacquisitions are growing at a significant level (Lasserre, 2012). The event ofinternational merger and acquisitions take place when the companies merge or acompany acquires another company internationally. This is the reason internationalmerger and acquisitions can also be recognized as global merger and acquisitions orcross border merger and acquisitions. This concept of global merger and acquisitionbecame familiar after globalization and worldwide financial reforms (Reddy, Nangia,and Agrawal, 2014). The reason behind exploring the factors that encouragedcountries to take such a step is due to the fact these worldwide events affects theprocedure of merger and acquisitions to a considerable extent(Lasserre, 2012).Global merger and acquisitions can take place in various forms; these can bevertical, horizontal, conglomerate, reverse, congeneric, dilutive, accretive and others(Gomes et al., 2013). Different countries adopt different ways to merge and acquire acompany. Generally countries promote merger and acquisitions in order to reapstrategic benefits in the markets of that particular country. This procedure of mergingand acquiring a company between countries gives multinational companies a variousnumber of advantages and these advantages can be achieved from economies ofscale and market control (Madhok and Keyhani, 2012). Globally merging andacquiring a company directly impacts company’s growth process by leading thecompany towards a path, and by following this path companies achieve desiredgoals. Merger and acquisition also helps companies to explore different new marketsand at the same time attain economies of scale. Foreign direct investment is alsostimulated by this global procedure of merging and acquiring (Oxelheim, 2012). Inorder to promote cross border merger and acquisitions rigid sets of rules andregulations are followed by the countries and these rules and regulations generallychanges according to the requirement and interest of the countries involved. Theserules and regulations thus generally set to escape the state of loss of the companiesinvolved by initiating growth (Marks and Mirvis, 2015). The rules and regulations thusshould be followed by countries before entering into international trade.
4OVERSEA MERGER AND ACQUISITION CREATE VALUE FOR COMPANIES1.2 Background to the study1.2.1 Research ProblemThere have been several attempts initiated in order to get an overview of theperformance of companies before and after the merger and acquisitions. Severalstudies conducted to assess whether cross border merger and acquisitions createvalues to companies or not. This kind of assessment is required due to severalreasons. Past years have witnessed outward foreign direct investment (OFDI) fromemerging economies and this contributed to global economic growth massively(Jongwanich and Kohpaiboon, 2013). This OFDI is mainly created by cross bordermerger and acquisitions. As a result of merging and acquisitions, emerging firmsachieve significant strategic objectives and these include acquisition of brand names,technology and natural resources (Deng, 2009). After the global financial crisis of2007-08 the outflow of FDI decreased from developed countries while the share ofFDI of the developing countries increased (UNCTAD, 2011). The share of crossborder merger and acquisitions (CM &As) increased from 15 percent in 2005 to 29percent in 2010 (UNCTAD, 2011). The percentage of CM& As increased due tobeneficial services obtained from it. Among the countries who participate in CM &As, China is the largest one (Nolan, 2012). China also regarded as huge source ofOFDI among emerging countries (Nolan, 2012). Thus increased level of OFDIsometimes create problem within economy. Global merger and acquisition thuscreate value to companies but at the same time disadvantages also involved with it(Guler and Nerkar, 2012). This paper thus mainly focuses on the impact of globalmerger and acquisition to companies and this study primarily focuses on Chinese E-commerce firms. The reason behind choosing China is due to its growing number ofoversea merger and acquisitions (Nolan, 2012).1.2.2 Research PurposeThis paper aims to explore the value that has been created by global mergerand acquisition to companies in China. Previous studies conducted on the sametopic found various variables that affect the performance of companies (Mahesh andPrasad, 2012). Therefore, this study intend to collect data from companies that areformed due to M & A. The chief purpose of the study is to investigate the variable
5OVERSEA MERGER AND ACQUISITION CREATE VALUE FOR COMPANIESsuch as ROA, ROE, AR, CAR and others, that create impact on M & A firms.Comparison is being done between effects observed before and after M & A.1.2.3 Research SignificancePrevious studies have recognized the value created by M & A firms and thesevalues not only helps the firms to grow in the market but also helps them to sustainin the market. M & A companies heavily undergo financial restructuring whichbasically refers to modifications in the resource structure of firms by addingadditional debt and thereby increasing financial leverage. Thus this type ofrestructuring mainly important in corporate finance and this is part of activities arerelated to financial activities for M & A firms (Gupta and Banerjee, 2017). M & Aimpacts mainly on investors, shareholders and suppliers. This impact in turn thusimpacts on return on investments. Thus this research is significant as it aims atanalyzing the impact of M & A on the companies in terms of value with respect tofinancial aspects.1.3 Research Aims Objectives1.3.1 Research AimThe chief purpose of this paper is to examine and identify the impact of globalmerger and acquisitions on creating value for Chinese firms.1.3.2 Research ObjectivesResearch Objective 1: To recognize the impact of oversea merger andacquisitions in terms of business value created on companies.Research Objective 2: To assess the merger and acquisition activities thattake place between Chinese firms that acquired foreign (non-Chinese) firms.1.4 Research QuestionsResearch Question 1: What is the impact of global merger and acquisitionon E-commerce industry?Research Question 2: What is the degree of value created as a result ofmerger and acquisition between Chinese firms that acquired foreign (non-Chinese)firms?
6OVERSEA MERGER AND ACQUISITION CREATE VALUE FOR COMPANIES
7OVERSEA MERGER AND ACQUISITION CREATE VALUE FOR COMPANIESChapter 2: Literature Review2.1 IntroductionThis chapter on literature review mainly focuses on results obtained fromprevious studies conducted on merger and acquisitions. Previous studies arereviewed in order to get an idea about the different facts on global mergers andacquisitions. The study also focuses to review literatures that are conducted relatedto Chinese firms formed after merger and acquisitions. This paper’s target to get ideaabout the value created by merger and acquisitions on companies mainly focuses onthe results obtained from the studies on the same issue. Review of these results isimportant because it helps this particular study to identify the factors that enhancesthe value to the companies. The study also aims to identify factors that affect thatparticularly create value to Chinese firms. Thus this entire literature review gives aprecise idea about the previous studies conducted on the same issue and thesignificant factors that affect the firms formed as a of M & A. 2.2 Evolution of Mergers and Acquisitions (M & A)Mergers and acquisitions are supported by countries, mainly to attainfavorable economic factors such as the GDP, interest rates and fiscal policies .These factors thus not only promote the M & A activities but also encourage the M &A process again and again. The history of merger and acquisition was observedback in the 19th century and the evolution of M & A happened in different pattern(Kolev, Haleblian and McNamara, 2012). From 1897-1904This period of M & A activities took place after economic expansion and mostsignificant feature of this period, M & A occurred following a horizontal pattern. Thispattern of M & A took place between firms which were anti competition and enjoydominance in the market according to their level of output produced in differentsectors. Mergers occurred in industries such as steel, construction and metal(Mariana, 2012).
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