A STRATEGIC EXPLANATION OF CORPORATE ACQUISITION SUCCESS
Abstract
This dissertation develops a multivariate modeling approach to explain acquisition success. The data inputs for this research are a mail questionnaire survey, and data taken from the COMPUSTAT Annual Industrial, COMPUSTAT Industrial Research, and CRSP Daily Returns Files. Acquisition success is defined in terms of management's subjective assessment in relation to nominated acquisitions. There is no relationship found between these assessments and traditional accounting-based or market-based measures of performance. Twelve potential explanatory concepts are considered during the analysis. These are: (1) Acquirer acquisition experience; (2) Acquirer scope; (3) Relative size of acquiree to acquirer; (4) Acquiree growth rate; (5) Acquiree valuation; (6) Acquiree risk profile; (7) Relatedness of acquiree to acquirer; (8) Functional understanding of acquiree; (9) Acquiree receptivity to acquisition; (10) Premium Paid; (11) Acquisition hurriedness; (12) Acquiree management retention. The highest level of explanation is achieved when acquirees are split into two groups, identified as a thinly traded sub-group, and a widely traded sub-group. The content of the thinly traded sub-group model is common stock as a percent of consideration mix (-), retention of acquiree management (+), number of acquisitions completed by the acquirer in the past five years (-), growth of acquiree relative to its industry (-), understanding of acquiree functional processes (+). The content of the widely traded sub-group model is accuracy of acquirer's estimate of acquiree's cash flow (+), growth of acquiree relative to its industry (-), premium paid (-), and retention of acquiree management (+). Two aspects of acquisition strategy emerge. The first is the importance of estimation of the value inherent in the entity being considered, and the second is the importance of ensuring extraction of such value. The two sub-models developed suggest different strategic emphasis. The valuation approach to acquisition decision-making is endorsed and complemented.
Degree
Ph.D.
Subject Area
Management
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