Many companies pursue a growth strategy by executing acquisitions. But in recent years they have seen too many publications showing that M&A failure ratios exceed success ratios. In this paper it is examined which methods can be applied for measuring the M&A success and reasons, why these studies concluded in negative results, are given.
For measuring the success of M&As, the definition of objectives, the company wants to achieve by acquiring, is essential. In general, the overall goal is to create shareholder value though each acquiring company has its own specific secondary goals. Within this paper these secondary goals are divided into the financial dimension (e.g. synergies), HR dimension (e.g. gaining key personnel) and market strategic dimension (e.g. gaining market share).
Before measuring the M&A success, some general problems which affect all evaluation methods have to be considered. The first problem refers to the period of measurement. It is difficult to find the adequate period as it considerably differs amongst the various evaluation methods. The second problem refers to the comparison of measurement results. For a realistic view, the results should not only be observed before and after the transaction but as-if figures of the single entities, in case of not having merged, should be considered.
The first method to measure M&A success is the objective evaluation model which can be subdivided into the annual accounts oriented method, the capital market oriented method and the event oriented method. The annual accounts method considers various ratios out of the external accounting system (e.g. RoE). It is rather a past-oriented method.
The second method to measure M&A success is the subjective evaluation method which includes questionings of people involved in the M&A process (managers, employees, internal and external experts). This method is especially important for measuring the success of the integration process and, although not useful as an isolated assessment, it makes a valuable contribution to the evaluation of the M&A success.
The various methods can lead to different results, therefore general statements about success or failure of M&A deals can only be made under reserve. Important aspects (e.g. distortion of study results due to large loss deals) were not considered. According to recent (more sophisticated) studies, M&As are able to generate value and growth under the right circumstances.
Inhaltsverzeichnis (Table of Contents)
- INTRODUCTION
- PROBLEM STATEMENT AND OBJECTIVES
- PROCEDURE
- OBJECTIVES OF MERGERS AND ACQUISITIONS
- DEFINITION OF SUCCESS
- SHAREHOLDER VALUE
- FINANCIAL DIMENSION
- HUMAN RESOURCE DIMENSION
- MARKET STRATEGIC DIMENSION
- THE PERIOD OF MEASUREMENT
- THE COMPARISON OF MEASUREMENT RESULTS
- METHODS FOR MEASURING THE SUCCESS OF AN M&A
- OBJECTIVE EVALUATION METHODS
- ANNUAL ACCOUNTS ORIENTED CONTROL OF SUCCESS
- CAPITAL MARKET ORIENTED CONTROL OF SUCCESS
- Abnormal Returns
- Market Capitalization
- Assessment of the Capital Market Oriented Control of Success
- EVENT ORIENTED EVALUATION METHOD
- SUBJECTIVE EVALUATION METHOD
- CONCLUSION
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper analyzes the methods used to measure the success of mergers and acquisitions (M&As), exploring the challenges and limitations of these methods. It aims to provide an overview of the different evaluation approaches and critically analyze their effectiveness.
- Defining M&A success and the importance of shareholder value
- Analyzing the different dimensions of success, including financial, human resource, and market strategic aspects
- Examining the challenges of measuring M&A success, such as defining the appropriate period for evaluation and ensuring comparability of results
- Exploring the various methods for measuring M&A success, including objective and subjective evaluation methods
- Highlighting the complexities and potential limitations of the different evaluation methods
Zusammenfassung der Kapitel (Chapter Summaries)
The paper begins by introducing the prevalent issue of M&As in the economy and the rising concern over their success rates. It highlights the importance of measuring M&A success for various stakeholders, including management, employees, and shareholders.
The second chapter delves into the objectives companies pursue when engaging in acquisitions, focusing on the overarching goal of increasing shareholder value. This chapter also explores the secondary goals, including the financial, human resource, and market strategic dimensions.
The paper then discusses the challenges associated with measuring M&A success, particularly the difficulty in determining the appropriate period for evaluation and ensuring comparability of results.
The main section focuses on the different methods of measuring M&A success, which are categorized into objective and subjective evaluation methods. The objective methods are further subdivided into annual accounts oriented, capital market oriented, and event oriented methods. The subjective method involves questioning various stakeholders involved in the M&A process.
Schlüsselwörter (Keywords)
This paper focuses on the core concepts of mergers and acquisitions (M&As), their success measurement, and the various methods used to evaluate their performance. Key themes include shareholder value, financial performance, human resource integration, market strategic impact, objective evaluation, subjective evaluation, annual accounts analysis, capital market analysis, and event-based analysis.
- Quote paper
- Charlotte Walz (Author), Carmen Hickl (Author), 2004, Controlling the Results of Mergers and Acquisitions - Methods for Measuring the M&A Success, Munich, GRIN Verlag, https://www.grin.com/document/47830
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