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Die M&amp;A REVIEW wurde 1990 von Prof. Dr. Günter Müller-Stewens ins Leben gerufen und von 1992 bis 2016 vom Institut für Betriebswirtschaft (IfB) an der Universität St. Gallen betreut. Heute sind Prof. Dr. Florian Bauer und Prof. Dr. Christoph Schalast die Herausgeber. Das Magazin liefert monatlich Fachbeiträge zu Unternehmensübernahmen und Fusionen im deutschsprachigen Raum und international. Sie bietet einen Überblick über aktuelle M&amp;A-Trends, erfolgte Transaktionen und beteiligte Interessengruppen wie Käufer, Verkäufer, Berater und Intermediäre. Die Themen umfassen praxisrelevante Fragestellungen entlang des gesamten M&amp;A-Prozesses, Analysen von Verflechtungsstrukturen einzelner Konzerne und Branchen, statistische Auswertungen, Länderanalysen sowie juristische und steuerrechtliche Beiträge.

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Kyeong-Seop (KS) Choi is a doctoral student at Florida State University where he is studying business strategy. KS hold a Ph.D. in philosophy from the University of Wurzburg.

Kyeong-Seop (KS) Choi

David R. King earned his PhD in strategy and entrepreneurship from Indiana University‘s Kelley School of Business, and he is the Higdon Professor of Management at Florida State University. Dave’s research focuses on merger and acquisition (M&amp;A) activity.

David R. King

<h4>1. SUMMARY</h4>A challenge in studying and learning about acquisitions is that the phenomenon is dynamic or ever chang-ing. While managers look forward, research looks backward to review what was done. The hope is that by understanding past activity we can predict what will happen in the future. To that end, we summarize statistics associated with firms before acquisitions from 2000 to 2020. We start in with 2000, as it coincides with increase globalization (e.g., U.S.-China Relations Act 2000, China joining WTO 2001, etc.), and we end in 2020 to account for delays in reporting. Still, the selected timeframe displays interesting trends that can provide useful insights. Specifically, our intent is to make inferences from the summary information to highlight trends than can inform acquisition research and management practice.<h4>2. The Data</h4>We pulled data from SDC platinum, a common resource for acquisition research, and Compustat, a resource for financial information. Overall, we summarize information for 216,241 acquisitions from SDC platinum. While the total number of deals over this timeframe is higher1, SDC platinum collects information on acquisitions globally, including public and private firms, with data on acquirers and deal characteristics frequently used in research. Financial information is limited to public firms, and we summarize aggregate information for acquirers and targets and compare that to over 500,000 firms in Compustat. While our summary is based on only a subset of overall acquisition activity, the information is representative of firm characteristics before acquisitions.<h4>3. Acquisition activity</h4>The information on merger and acquisition (M&amp;A) activity we gathered is summarized in Table 1 and discussed below.
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Overall activity. The number of acquisitions has continued relevance across the observed timeframe with an average of over 10,000 deals a year. The years before the 2001 stock market correction (dot com bubble), and 2008 financial crisis stand out for high levels of acquisition activity, reinforcing that inflated stock prices increase acquisition activity.2 The use of acquisitions has also proliferated across nations with the United States share of M&amp;A activity falling and it has risen in China, see Figure 1. Still, acquisitions appear more frequent in common law countries.
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Value of deals. The average mean value of deals (2000-2020) was $244 million. In comparing mean and median deal values, the mean deal value is skewed by a few large deals. In other words, most deals are smaller than the average. The average value of deals at the 90th percentile is $359.1 million. In 2007, the largest deal in the U.S. was the buyout of Texas Power Company by a group of investors, including Kohlberg Kravis Roberts &amp; Co (KKR) for $45 billion3 that is estimated to have lost approximately $4 billion for its investors (Dezember, 2016).The low performance of large deals relates to research observations that large deals often struggle to create value, leading to observations that the performance of acquiring firms would be positive if large deals that lost value were eliminated.4 Interestingly, there is an increasing size of the largest deals (2017-2020). Meanwhile, the median value of deals has remained in a relatively narrow range. There is an opportunity for research to examine differences in the performance of acquisitions of different size to offer explanations for a general increase in large acquisitions. While this may suggest that mangers are becoming less cautious, it could also be driven by increased competitive demands from globalization, or technology facilitating improved coordination.Acquirers and Targets. An interesting shift is that in 2000, most acquisitions were by public firms, but the gap started to close by 2018 with acquisitions by private firms representing roughly 80 percent the number by public firms. Still, over the entire sample (2000 to 2020) public firms made almost twice as many acquisitions as private firms.In contrast, private firms represent a larger share of target firms (2000 to 2020) with the overall proportion of private firms acquired three times the number of public targets. This is interesting as M&amp;A research largely uses samples of public firms, as they have more information available.5 Yet, the acquisition of private targets tend to perform better.6 The implication is that M&amp;A performance may be better than reported by research that depend on samples involving public acquiring and target firms.Location and Distance. The proportion of cross-border acquisitions has remained relatively steady within a range of 20 to 25 percent, and an average value of 23.5 percent (2000-2020).Still, a higher level of cross-border acquisitions may be hidden by a general increase in firm subsidiaries completing acquisitions. For example, in a separate sample focused on acquisitions in India, we observed that multinational firms often used local subsidiaries to make acquisitions. If this is true, acquirers may first enter a country and then use a subsidiary to make acquisitions. In other words, measures of geographic distance between acquiring and target firms may be underestimated. Still, the mean geographic distance between acquirers and targets is greater than the median distance for all years, but 2013. This suggests that the average is skewed by some deals that are completed over longer distances, or firms use acquisitions as a strategy for entering new markets. In general, longer distances make coordination more difficult and it is associated with lower performance.7<h4>4. Financial Data</h4>Information on financial data for firms before an acquisition (i.e., year prior to a deal) is summarized and compared to all firms in Compustat, in Table 2.
 <img class="c-image inline not-prose" src="https://cms.manda.co/storage/ma-review/2023/04/A8_Tabelle_2_.jpg" alt= decoding="async" loading="lazy" />
 
Firm leverage (debt). In general, acquirers have less book value leverage (total long-term debt divided by total assets) than target firms and firms overall. Acquisitions are expensive and often partially financed with debt, and this supports that firms need adequate debt capacity to support acquisitions and their integration.Profitability (ROA). Acquiring firms also tend to have higher profitability than target firms and firms overall. This is consistent with acquiring firms having excess capacity (i.e., managerial or financial) to support acquisitions and improving the performance of target firms.Intangible assets. An interesting observation is that both acquiring and target firms have more intangible assets than firms overall. This supports observations that complementary resources can be combined using acquisitions.8Cash. A general assumption is that managers use available cash to finance acquisitions.9 However, our sample suggests acquirers (on average) do not hold significantly more cash that target firms or firms overall.R&amp;D. While potentially skewed by missing data being set to zero, target firms appear to perform slightly more R&amp;D than acquiring firms or firms overall. The observed difference will be larger, as target firms tend to be smaller. In other words, R&amp;D will represent a larger commitment, or percentage of firm resources. This is consistent with observations that firms with significant R&amp;D investment increase the likelihood that they will be acquired (Heeley et al., 2006).10Tobin’s Q. A hybrid measure of accounting and stock market performance, Tobin’s Q provides an indication of the quality of a firm’s management.11 Acquiring firms (on average) have higher Tobin’s Q than either target firms or firms overall. Further, target firm’s Tobin’s Q is lower than firms overall. This is consistent with a market for corporate control explanation for acquisitions that better managed firms take over poorly managed firms.12<h4>5. Discussion</h4>In summary, M&amp;A research is based on only a proportion of overall deal activity, as it has focused on the acquisition activity of public firms in the United States. This suggests that average M&amp;A performance is likely higher than reported. For example, acquisitions of private firms have been observed to perform better, and they are often smaller and avoid complications of large deals that often fail. Further, current acquisitions are more dispersed internationally, and research is needed to examine the impact of differences across nations on acquisitions. For example, we potentially identify that cross-border acquisitions may be underreported, as multinational firms may use subsidiaries in a nation to make acquisitions. Our review of information on acquisition activity and the financial characteristics of firms involved in M&amp;A offers additional insights for research and managers.For research implications, the collected information supports and refutes common expectations. In contrast to expectations, our data show that acquirers do not have more cash (on average) than other firms. This is inconsistent with managerial motives for acquisitions. In support of theory, we find that acquisitions often combine complementary resources and are used to take over firms with lower financial performance (e.g., ROA) and less efficient management (e.g., Tobin’s Q). The overall implication is that M&amp;A activity is a necessary corporate restructuring tool, and it has a more positive performance impact than reported. To confirm this observation, there is a need for research on private firms, and relationships between an acquisition’s size and its performance.For managers, the summarized information also offers some important insights. Importantly, the information from M&amp;A research does not reflect broader acquisition activity by smaller, private firms. While what research has found can still apply, observations that most M&amp;A fail are likely overblown, as larger acquisitions have more risk and lower performance. This means that managers should not avoid acquisitions. However, managers should avoid large acquisitions. What is considered ‘large’ will vary for different firms, and what should be avoided are deals with firms that are similar in size. Acquisitions are generally easier and perform better if the target is smaller than the acquirer. Further, managers should have a clear rationale or strategy behind a deal, and not complete them because they see others completing deals. Acquisitions later in an acquisition wave generally perform worse than earlier acquisitions, as the best targets are picked first and the premium paid increases as targets become scarce.13 In closing, our summary suggests there are two rationales that can help an acquisition perform better: 1) Pick a target where an acquirer can improve its operations, or 2) Pick a target with resources or technology that an acquirer needs.<blockquote>1 Institute for Mergers, Acquisitions, and Alliances (IMAA). 2022. M&amp;A statistics: https://imaa-institute.org/mergers-and-acquisitions-statistics/
2 Rhodes-Kopf, M., Robinson, D., Viswanathan, S. 2005. Valuation waves and merger activity: The empirical evidence, Journal of Financial Economics, 77: 561-603.
3 CNN. 2007. Record buyout for TXU: https://money.cnn.com/2007/02/26/news/companies/txu/ Dezember, R. 2016. KKR learns harsh lesson from energy bets. Wall Street Journal:
https://www.wsj.com/articles/kkr-learns-harsh-lesson-from-energy-bets-1455136992
4 Moeller, S., Schlingemann, F., Stulz, R. 2005. Wealth destruction on a massive scale? A study of acquiring-firm returns in the recent merger wave, Journal of Finance, 60: 757-782.
5 Dess, G., Robinson, R. 1984. Measuring organizational performance in the absence of objective measures: the case of the privatelyheld firm and conglomerate business unit. Strategic Management Journal, 5(3), 265-273.
6 Cuypers, I., Cuypers, Y., Martin, X. 2017. When the target may know better: Effects of experience and information asymmetries on value from mergers and acquisitions. Strategic Management Journal, 38(3), 609-625.
7 Chakrabarti, A., Mitchell, W. 2016. The role of geographic distance in completing related acquisitions: Evidence from US chemical manufacturers. Strategic Management Journal, 37(4), 673-694.
8 King, D., Covin, J., Hegarty, W. 2003. Complementary resources and the exploitation of technological innovations. Journal of Management, 29(4), 589-606.
9 Jensen, M. 1986. Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76(2), 323–329.
10 Heeley, M., King, D., Covin, J. 2006. Effects of firm R&amp;D investment and environment on acquisition likelihood. Journal of Management Studies, 43(7), 1513-1535.
11 King, D., Bauer, F., Schriber, S. 2018. Mergers &amp; Acquisitions: A Research Overview. Routledge: Oxford, UK.
12 Offenberg, D. 2009. Firm size and the effectiveness of the market for corporate control. Journal of Corporate Finance, 15(1), 66–79.
13 Martynova, M., Renneboog, L. 2008. A century of corporate takeovers: What have we learned and where do we stand, Journal of Banking and Finance, 32: 2148-2177</blockquote>

In their article, Kyeong-Seop (KS) Choi and David R. King from Florida State University take an initial look back at the development of M&A transactions in the 21st century.

21st Century Acquisitions: Summary of Part 1 – Pre-acquisition