Selection and Valuation of Cross-Border Mergers and Acquisition – Literature Review

Selection and Valuation of Cross-Border
Mergers and Acquisition – Literature Review

(c) copyright 2009

ABSTRACT

The longstanding debate over the efficacy of M&A as a mode of business growth continues to separate practitioners and academics. While M&A global volume looks likely to return to US$2 trillion levels following a rebound from year 2000 lows, the largely economics-oriented research literature overwhelmingly concludes that M&A at best achieves zero real gains for the average acquiring firm, with effectively all value creation being transferred to the shareholders of the acquired entity. Dispersion of results about the mean is significant, representing considerable investment risk. The literature shows that most acquisitions fail to achieve their stated or implied financial objectives, with up to two-thirds being described as failures. Either these analyses are flawed, or else hidden causal factors are at work. Researchers are divided on the issue, providing only limited guidance to the practitioner evaluating M&A opportunities.

Seen as a process rather than as an investment event, M&A becomes better understood. One critical part of that process is the acquisition target selection and valuation phase, the immediate precursor to the difficult, protracted, expensive and risky implementation stage. Assessments of strategic and organisational fit, resource dependencies, human capital demands and access to new technologies and markets, are generic drivers for M&A as a strategic step, but they do little to inform target selection. At the discrete decision stage, however, when a particular target is being selected and evaluated in order to offer a price, the decision-maker faces the highly specific questions of who to buy and how much to pay, in many cases setting the path for the largest single business decision in a chief executive’s career. The M&A literature is largely silent on the selection issue.

The lack of empirical

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