Market expertise vital for M&A

Businesses acquired by institutional investors are posting higher returns in the long run compared to those which are not, new research shows.


Businesses acquired by institutional investors are posting higher returns in the long run compared to those which are not, new research shows.

Businesses acquired by institutional investors are posting higher returns in the long run compared to those which are not, new research shows.

The study of cross-border M&A deals, conducted by the M&A Research Centre at Cass Business School and Credit Suisse, found that businesses acquired by investors with an expertise in the target country outperformed the FTSE All Share by 37 per cent.

Companies purchased by non-specific investors trailed with 14 per cent outperforming the FTSE All Share.

Miles Gietzmann, from the M&A Research Centre at Cass, says that acquisitive companies would do well to consult with institutional investors with regional expertise.

He adds: ‘Companies that are considering a number of different regions to invest in can test the waters in advance of any specific bid by consulting investors with expertise in the region.

‘These global investors can present a quick overall assessment of the attractiveness and viability of regional investment.’

The research was conducted by examining 40 ‘large-sized’ (over 25 per cent deal value to market value of acquirer) cross-border M&A deals between 2002 and 2009.

According to the findings, share price returns are higher in the long-term on deals which are supported by institutional investors with expert knowledge of the target market. A one per cent increase in investor shareholding of the acquiring company was linked to a 1.76 per cent increase in share price performance over two years.

The findings could force companies to re-examine M&A strategies, Gietzmann believes.

He explains: ‘The ‘blitzkrieg’ method of entry into foreign markets conducted rapidly and in secret may therefore not necessarily be the best approach.

‘Our findings suggest superior returns could be achieved by building a gradual dialogue between companies and investors with knowledge of a target foreign market before entering.’

Todd Cardy

Todd Cardy

Todd was Editor of GrowthBusiness.co.uk between 2010 and 2011 as well as being responsible for publishing our digital and printed magazines focusing on private equity and venture capital. Connect with...

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