This thesis investigates the choice of payment method in German M&A. It aims at identifying which determinants are most influential in explaining the choice of payment method in German M&A. The focus, thereby, is on bidder-, acquisition-, and business cycle characteristics. To provide empirical evidence, 207 German acquisitions conducted during January 2003 to December 2010 are closely studied.
Mergers and Acquisitions (M&A) are among the most important and influential investment decisions made by a company. Consequently, M&A have attracted immense attention from both academics and professionals. Among the various topics that have been studied in M&A, the method of payment has been the subject of numerous researches both theoretically and empirically. These studies highlight that the method of payment is one of the most critical elements of the M&A process and its choice may well determine both the ability to complete the acquisitions and the future success of the merged entities.
The choice of payment method in mergers and acquisitions (M&A) has significant diverse implications for the bidder, the target, and the shareholders of both parties. Therefore, it is driven by distinct factors. This becomes evident when examining the choice of payment method in M&A more closely. Consistent with earlier empirical studies, the logistic regressions'analysis shows that there are several characteristics that affect the choice of payment method. Particularly, the findings suggest that the characteristics of the bidder are most influential in determining the payment method for German M&A. That is to say, the larger a bidder’s total assets, a bidder’s cash holdings, and the relative size of the bidder to the target, the higher the probability of cash payments in German M&A. On the contrary, the higher a bidder’s leverage ratio and the higher a bidder’s tangible assets, the more likely share payments are employed. In addition, a rising stock market index also indicates a higher probability of cash payment in German M&A. Overall, the findings of this paper corroborate common theories and empirical studies. However, similar to other studies on the choice of payment method the analysis shows inconsistent results for some characteristics. This can be partly explained by country-specific characteristics. However, it can also be justified by the selection of the samples, the time, and the undertaking of the study.
Table of Contents
1 INTRODUCTION
1.1 THE GERMAN MERGERS AND ACQUISITIONS MARKET
1.2 PROBLEM DEFINITION
2 FUNDAMENTALS AND THEORETICAL BACKGROUND
2.1 MERGERS AND ACQUISITIONS
2.2 MERGERS AND ACQUISITIONS TRANSACTION PROCESS
2.3 PAYMENT METHODS
2.3.1 CASH PAYMENTS
2.3.2 SHARE PAYMENTS
2.3.3 MIXED PAYMENTS
2.3.4 OTHER PAYMENTS
2.3.5 METHOD OF PAYMENT VS. MODE OF FINANCING
2.4 THEORETICAL BACKGROUND OF THE PAYMENT METHOD
2.4.1 ASYMMETRIC INFORMATION
2.4.2 TAXATION
3 LITERATURE REVIEW AND HYPOTHESES
3.1 CHARACTERISTICS OF THE BIDDER
3.1.1 CORPORATE CONTROL HYPOTHESES
3.1.2 FINANCIAL LEVERAGE HYPOTHESIS
3.1.3 DEBT CAPACITY HYPOTHESES
3.1.4 CASH AVAILABILITY HYPOTHESIS
3.1.5 RELATIVE SIZE HYPOTHESIS
3.1.6 INVESTMENT OPPORTUNITIES HYPOTHESIS
3.1.7 STOCK PERFORMANCE HYPOTHESIS
3.2 CHARACTERISTICS OF THE ACQUISITION
3.2.1 CROSS-BORDER HYPOTHESIS
3.2.2 CROSS-INDUSTRY HYPOTHESIS
3.2.3 UNLISTED TARGET HYPOTHESIS
3.3 CHARACTERISTICS OF THE BUSINESS CYCLE
3.3.1 MARKET PERFORMANCE HYPOTHESIS
3.4 OVERVIEW OF HYPOTHESES
4 DATA AND DESCRIPTIVE STATISTICS
4.1 DATA
4.2 DESCRIPTIVE STATISTICS
5 METHODOLOGY
5.1 BINARY LOGISTIC REGRESSION
5.2 MULTINOMIAL LOGISTIC REGRESSION
5.3 PRECONDITIONS FOR THE LOGISTIC REGRESSION
6 RESULTS
6.1 BINARY LOGISTIC REGRESSION
6.1.1 CASH PAYMENTS VS. SHARE PAYMENTS
6.1.2 CASH PAYMENTS VS. MIXED PAYMENTS
6.1.3 SHARE PAYMENTS VS. MIXED PAYMENTS
6.2 MULTINOMIAL LOGISTIC REGRESSION
6.3 CRITICAL REFLECTION
7 CONCLUSION
Research Objectives and Core Themes
The primary research objective is to identify the most influential determinants of the payment method in German M&A transactions, focusing specifically on bidder, acquisition, and business cycle characteristics. The central research question investigates how these specific factors influence the likelihood of a deal being settled via cash, stock, or a mix of both.
- Bidder-specific characteristics, including corporate control, leverage, and cash availability.
- The influence of acquisition attributes like cross-border nature, industry differences, and target listing status.
- The impact of broader business cycle phases and market performance on financing choices.
- An empirical analysis of 207 German acquisitions conducted between 2003 and 2010.
- A comparative assessment of binary and multinomial logistic regression models to identify significant drivers of payment method selection.
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3.1.1 CORPORATE CONTROL HYPOTHESES
As control is valuable, cash and share payments have contrary effects on the ownership structure and the corporate control. Whereas in cash payments the ownership structure remains unchanged, share payments may lead to the incorporation of new blockholders. Thus, shareholders and managers with a stake in the company should be reluctant to offer stock when this causes a dilution of their control and leads to outside intervention (Amihud et al. 1990, Martin 1996, Grullon et al. 1997, Zhang et al. 2003, Faccio and Masulis 2005, and Swieringa and Schauten 2008).
In their study, Amihud et al. (1990) empirically test the proposition that corporate insiders who value control will prefer financing acquisitions with cash rather than offering shares which dilutes their holdings. Their data includes 209 acquisitions from 165 firms during the years 1981 to 1983. Their findings support the hypothesis that the larger the managerial ownership fraction of the acquiring firm, the more likely cash will be applied (Amihud et al. 1990, p. 614). According to Stulz, this can also be interpreted using the asymmetric information argument. “If insiders hold a substantial quantity of their company’s shares because they believe them to be undervalued, they will be less willing to issue new stock to finance acquisitions” (Amihud et al. 1990, p. 614).
Summary of Chapters
1 INTRODUCTION: Outlines the significance of payment method choice in M&A and details the development of the German M&A market from 1985 to date.
2 FUNDAMENTALS AND THEORETICAL BACKGROUND: Defines M&A, describes various payment methods, and introduces theories like asymmetric information and taxation as drivers of payment choice.
3 LITERATURE REVIEW AND HYPOTHESES: Reviews previous empirical literature on M&A payment methods and establishes fourteen specific, testable hypotheses regarding bidder, acquisition, and business cycle characteristics.
4 DATA AND DESCRIPTIVE STATISTICS: Describes the data collection process from 207 German acquisitions and provides an analysis of the sample statistics.
5 METHODOLOGY: Explains the statistical models used, specifically binary and multinomial logistic regressions, and the preconditions for these models.
6 RESULTS: Presents and discusses the findings from the regression analyses, assessing the significance of various independent variables on the chosen payment methods.
7 CONCLUSION: Summarizes the key empirical findings, reflects on the research limitations, and evaluates the validity of the tested theories within the German context.
Keywords
Mergers and Acquisitions, M&A, Payment Method, Cash Payments, Share Payments, Mixed Payments, German M&A Market, Bidder Characteristics, Logistic Regression, Corporate Control, Asymmetric Information, Taxation, Financial Leverage, Debt Capacity, Business Cycle.
Frequently Asked Questions
What is the core focus of this thesis?
This thesis investigates the determinants of payment methods in German mergers and acquisitions. It specifically aims to identify which bidder, acquisition, and business cycle characteristics influence whether a transaction is paid for with cash, shares, or a combination of both.
Which theoretical frameworks are used to explain payment choice?
The work primarily relies on the theories of asymmetric information, taxation, agency costs, and the pecking order theory, as established in international literature, to construct hypotheses regarding payment preferences.
What is the main research question?
The research seeks to answer which specific factors—such as a bidder’s leverage, cash holdings, or the target’s listing status—are most influential in determining the choice of payment method within the German M&A market.
What research methodology is applied?
The author uses empirical, quantitative methods. Specifically, binary logistic regression models and multinomial logistic regression models are employed to analyze a dataset of 207 German acquisitions from 2003 to 2010.
What does the main body of the work cover?
The core of the thesis provides a literature review, the derivation of 14 distinct hypotheses, a detailed data collection description, and a rigorous statistical analysis of those hypotheses using logistic regression techniques.
Which keywords best describe this study?
The key themes are Mergers and Acquisitions, payment method selection, German capital markets, and financial determinants such as corporate control, financial leverage, and growth opportunities.
How do German companies differ from US companies in M&A payment?
The thesis notes that the choice of payment in German M&A often differs from US findings, specifically highlighting the significance of the bidder’s financial condition and corporate control concerns, which are identified as highly influential in the German context.
How does the author treat "method of payment" versus "mode of financing"?
While acknowledging they are technically different, the author chooses to treat these terms as synonymous for the purposes of this study due to a lack of reliable, granular data on the specific mode of financing for the observed transactions.
- Arbeit zitieren
- Ulrich M. Simon (Autor:in), 2011, Choice of Payment in German Mergers and Acquisitions. An Empirical Analysis of Bidder-Acquisition and Business Cycles, München, GRIN Verlag, https://www.grin.com/document/590667
