Over the last decade, there is an increasing involvement of financial advisers in European M&A-transactions. Since 1995 the involvement of M&A-advisers in transactions with European participation has more than doubled (16.4% in 1995; 34.7% in 2005). In approximately a quarter of all deals (mean percentage of deals from 1995-2005), M&A-advisers were involved. This raises the questions whether companies hiring M&A-advisers are better off and whether M&A-advisers can be seen as value drivers. The aforementioned questions have been rarely examined in empirical research. Furthermore, most of the existing studies focus on the US-American M&A-market. There has been little research on the European M&A-market and no research at all on the European construction industry in particular. Thus, the paper’s purpose is to examine the question whether M&A-advisers are value drivers in the European construction industry. In the first part of this paper relevant theoretical concepts (2.1) are presented, existing literature is reviewed (2.2) and the research hypotheses are derived from theory (2.3). In the empirical part of the paper, the selection of the data sample (3.1) and the event study methodology (3.2) are first described. Then, the four hypotheses (adviser involvement, adviser reputation, negotiation effect and number of adviser involved) are tested followed by the multivariate analysis and the combined entity analysis (3.3). The paper is concluded by a summary of the findings including implications for further research (4).
Table of Contents
1. INTRODUCTION
2. THEORETICAL CONCEPTS AND LITERATURE REVIEW
2.1. THEORETICAL CONCEPTS
2.2. LITERATURE REVIEW
2.3. RESEARCH HYPOTHESES
3. M&A-ADVISERS IN THE EUROPEAN CONSTRUCTION INDUSTRY: EMPIRICAL EVIDENCE
3.1. DATA SAMPLE – SELECTION AND DESCRIPTION
3.2. EVENT STUDY METHODOLOGY
3.3. EMPIRICAL EVIDENCE FROM THE EUROPEAN CONSTRUCTION INDUSTRY
3.3.1. Hypothesis 1: Adviser Effect
3.3.2. Hypothesis 2: Reputation Effect
3.3.3. Hypothesis 3: Negotiation Effect
3.3.4. Hypothesis 4: Number of Adviser Involved
3.3.5. Multivariate Analysis
3.3.6. Combined Entity Analysis
4. SUMMARY AND CONCLUSION
Research Objectives and Key Topics
This paper examines whether M&A-advisers act as value drivers in the European construction industry, given the increasing involvement of financial advisers in M&A transactions. The research addresses whether hiring an adviser leads to superior shareholder returns for bidders and targets through empirical analysis of 171 transactions.
- Role of financial advisers as potential value drivers in M&A.
- Impact of adviser reputation on wealth generation.
- Analysis of negotiation effects and bargaining power.
- Effect of the number of advisers on transaction outcomes.
- Empirical evaluation using Cumulative Abnormal Returns (CAR).
Excerpt from the Book
3.2. Event Study Methodology
In order to address the research questions propose above, short-term cumulative abnormal returns (CARs) of bidder, target and the combined entity will be analyzed. Given the rationality and information efficiency of the marketplace, the effects of an event will be reflected immediately in security prices shortly after new information is announced. Thus, the difference between the expected return and the actual return, the so-called abnormal return, can be associated with the new information which was disclosed to the marketplace. The event date is defined as the announcement date of the takeover as stated in SDC database. In case this is not a trading day the first trading day after the announcement day is considered the event day.
As the event occurrence cannot be determined with complete certainty, the study therefore examines different event windows before and after the event date assuming that stock price reactions will spread over several days. In fact, eight event windows ([-20;20], [-10;10], [-5;5], [-1;1], [0], [-20;-1], [1;20] and [-4;2]) will be calculated to cover different time horizons.
To calculate the expected return a market model approach is applied. The parameters of the market model are calculated by an ordinary least squares regression (OLS) with daily returns as suggested by BROWN/WARNER (1985):
Chapter Summaries
1. INTRODUCTION: Outlines the increasing trend of adviser involvement in European M&A and sets the goal of investigating if these advisers act as value drivers.
2. THEORETICAL CONCEPTS AND LITERATURE REVIEW: Reviews existing literature on investment bank prominence and establishes four hypotheses related to adviser involvement, reputation, negotiation, and number of advisers.
3. M&A-ADVISERS IN THE EUROPEAN CONSTRUCTION INDUSTRY: EMPIRICAL EVIDENCE: Details the data sample of 171 transactions, the event study methodology, and tests the four hypotheses using univariate and multivariate analysis.
4. SUMMARY AND CONCLUSION: Concludes that financial advisers generally are not significant value drivers in this industry, though target returns improve when bidders employ an adviser.
Keywords
M&A-advisers, European construction industry, Cumulative abnormal return, CAR, Investment banks, Adviser reputation, Wealth creation, Shareholder returns, Negotiation effect, Empirical research, Event study methodology, Value drivers, Transaction costs, Information asymmetry, Financial advisory
Frequently Asked Questions
What is the core focus of this research?
The research investigates whether the involvement of financial advisers serves as a value driver for companies involved in M&A transactions within the European construction industry.
What are the primary themes analyzed?
The study centers on the impact of adviser involvement, adviser reputation, negotiation dynamics, and the number of advisers engaged in a transaction.
What is the primary goal or research question?
The central question is: "Are M&A-advisers value drivers in the European construction industry?"
Which methodology is employed in the study?
The authors use an event study methodology to calculate Cumulative Abnormal Returns (CARs) for bidders, targets, and combined entities, supplemented by multivariate cross-sectional regression analysis.
What topics are covered in the main section?
The main section details the data selection criteria, the event study model, hypothesis testing (Adviser Effect, Reputation, Negotiation, and Number of Advisers), and multivariate analysis of control variables.
Which keywords best characterize this work?
Key terms include M&A-advisers, Cumulative abnormal return (CAR), European construction industry, and investment bank reputation.
Did the study find that adviser reputation significantly impacts value?
No, the study concluded that there is no systematic and statistically significant effect of adviser reputation on the value generation for either bidders or targets.
How does the performance of bidders without advisers compare to those with advisers?
The study found that in the event periods immediately surrounding the announcement, bidders without advisers actually outperformed those with advisers, suggesting potential information leakages.
- Quote paper
- Martin Renze-Westendorf (Author), Christian Gessner (Author), 2006, Are M&A Advisors Value Drivers in the European Construction Industry?, Munich, GRIN Verlag, https://www.grin.com/document/58642
