Exploring Improvements of Post-Merger Corporate Performance: The Case of Egypt

-- Tariq H Ismail, Abdulati A Abdou and Radwa M Annis

This paper examines the operating performance of a sample of Egyptian companies involved in Mergers and Acquisitions (M&A) transactions for the period 1996 to 2003. The analysis is based on the accounting measures to test the effects of M&A on the corporate performance of the construction and technology sectors. The study tests two hypotheses: first, whether there have been significant improvements in corporate performance following the M&A event, and second, whether the industry sector has an impact on the corporate performance. Empirical results revealed that some measures of corporate performance like profitability, suggested statistically significant gains in the years following M&A, especially in the construction sector. Other performance measures such as efficiency, liquidity, solvency, and cash flow position do not show significant improvements after mergers in the short-run analysis in both the sectors. The paper concludes that mergers in the Egyptian technology sector do not lead to improved corporate performance in the short run. The findings of this study significantly contribute to the empirical literature on M&A in the emerging markets of Egypt.

© 2011 IUP. All Rights Reserved.

Determinants of M&A Success in the Pharmaceutical and Biotechnological Industry

-- Marc Kirchhoff and Dirk Schiereck

The pharma and biotech industry has faced major challenges in the previous years with respect to both the revenues and costs which led to a merger wave in this particular sector. Using standard event study methodology, this paper analyzes the success of the worldwide M&A (Mergers and Acquisitions) transactions in the pharma and biotech industry between 1996 and 2006. Overall, the combined entities show insignificant announcement effects, targets benefit from highly positive abnormal returns, whereas acquirers reduce their shareholder value. With regard to specific success factors, we find a strong evidence that focus on sales synergies is valued by the stock markets as a key success strategy for pharma and biotech M&A. Consequently, traditional pharma companies that still dispose of sufficient cash from their existing sales but face a dried-out product and patent pipeline should acquire innovative, but cash-poor biotech firms. The level of cost efficiency does not have a statistically significant impact on the abnormal returns. We interpret this finding as an indicator that the stock markets do not believe in cost synergies as a motivation for a successful transaction in the pharma and biotech industry.

© 2011 IUP. All Rights Reserved.

Differentiating Characteristics of Acquiring Firms

-- Shantanu Dutta

In this study, we examine the differentiating characteristics of acquiring firms and focus on the M&A (Mergers and Acquisitions) motives from the perspective of agency theory. We use an out-of-sample dataset that involves all completed Canadian M&A deals between 1997 and 2002. With respect to firm-specific financial and technical variables, we found that firms with higher cash reserves, better past performances, and a higher R&D (Research and Development) focus (high-tech firms) are more likely to be the acquirers. With respect to the firm-specific governance variables, we found that acquiring firms have higher pay ratios (option pay plus option value dividend by cash pay), lower inside director ratios, higher board sizes, and lower blockholder ownerships. However, these results are not supported in multivariate analysis. The results from differentiating characteristics analyses have highlighted at least two motives behind an acquisition decision. First, we found strong support for an `empire building' motive behind M&A. Our results indicate that firms with higher levels of cash reserves are more likely to be acquirers. In other words, firms with more CEO discretion and excess resources tend to grow in size through acquisition. Second, we found support for a strategic motive for high-tech firms behind M&A. High-tech firms were more likely to make an acquisition in order to stay innovative and preempt competition.

© 2011 IUP. All Rights Reserved.

CASE STUDY

3i Infotech: Developing a Hybrid Strategy

-- Udbhav Shah, Sakshi Goenka and Surajit Ghosh Dastidar

The globalization of markets for goods and services is continuing at an unabated pace. But the globalized market is highly fragmented and there are several players in IT industry who focus on one or two lines of business and operate globally or in one geography. While other IT companies focused on either the software services business or the products business, 3i Infotech envisaged to straddle both domains and has positioned itself as Solution Company having a service-product mix. But initially the company did not have products to offer to the requirements of the emerging economies. So they adopted and developed a strategy of acquiring products already launched and accepted in the market and making them stronger offerings. The case analyzes the pros and cons of this unconventional strategic plan and contemplates on the issue if the same unprecedented growth of 3i Infotech would continue with this same strategy.

© 2011 IUP. All Rights Reserved.