-
Electronic copy available at:
http://ssrn.com/abstract=2394509
PhD Research Proposal
The Firm Valuations in Mergers & Acquisitions, and Its
Impacts on Key Financial Ratios
Evidence from Banking Industry in UK over the period of
2000-2013
Yhlas Sovbetov
20 August 2013
-
Electronic copy available at:
http://ssrn.com/abstract=2394509
1. INTRODUCTION
1.1. The Rationale of Mergers & Acquisitions
Companies set various of strategies to enlarge and expand their
business to the different
markets in both domestic and global scope. According to Santos
et al (2012) and Akgobek
(2012), these strategies generally based on an internally
growing which is expressed as raw
organic growth of the firm, or externally expansion that is
building strategic corporation
bridges such as mergers and acquisitions (hereinafter referred
as M&A). Moreover, according
to Khan (2011), the recent economic difficulties, besides a cut
throat competition in the
financial markets, bereave the chance of week structured firms
to survive, and forcing them
either to death or M&A. On other hand, as Kyei-Mensah (2011)
states, the most recent
business expansions at international level are made through
M&A, due to its less cost of
market entrance than other methods, and it is a phenomenon that
the corporate investment is
the quickest way to increase shareholders wealth. Plus,
according to Kumar and Bansal
(2008), Malucha (2009), and Akgobek (2012) another rationale of
preference of M&A
strategy too often is establishing greater market power, and
getting a competitive advantage
over rivals. They believe that M&A and other strategic
alliances are reforming the structure
of the corporation by empowering its competitive relations in
the market.
Furthermore, as rationale of M&A, Roberts et al (2003) opine
that besides gaining access to
new markets, seizing access to source of raw materials can be
aimed as aftermath of the
strategy for new opportunities. Moreover, as Malucha (2009),
Khan (2011), and Akgobek
(2012) state, merge of two entities sometimes creates more new
value than sum of each
separate, which is know as synergy effect, and this can entice
the firms at tough periods.
Also, the author believes that, one another motive behind
M&A is that it helps to increase the
market share and cost efficiency of the firm. Moreover,
according to Motis (2007) and
Akgobek (2012), the M&A strategy can be aimed as feasible
method of growing in particular
markets by diversifying the risk associated assets, and thus
increasing the efficiency.
1.2. Recent M&A Activities in UK
According to Tzonis (2008), since the last three decades, the
literature has witnessed
noteworthy increase in the numbers of M&A in the UK. As
author states, only during the
period of 1980-1990, two hundred and sixty three (263) public
listed firms, and hundred and
thirty seven (137) non financial firms, in total three hundred
and ninety three (393) firms
-
were acquired. The cost of these acquisitions were nearly 32bn
by the end of the 1995. On
other hand, in recent years, the M&A activities in UK tend
to decline. According to Heera
(2013), the volume of deals in the last quarter of 2009 were
1176, whereas in the last quarter
of 2010 it declined to 989. Likewise, the value of deals in the
same period of 2009 and 2010,
were 65.5bn and 55.6bn respectively. Moreover, the author states
that most of these UK
deals (%15) were made with U.S, (%5) Australia, and (%3)
Germany.
Table 1: Recent M&A Activities in UK
Source: (Heera, 2013)
On other hand, in M&A, evaluation of utilities or assets,
assessing their fundamental value is
crucial. For instance, Sovbetov (2012) in his study about
privatization of stated owned
monopolies, criticises the Thatcher's privatization policy of
British commanding height such
as British gas, oil, railway, airways, and etc. He underlines
that the Thatcher government
failed in evaluating these state owned utilities, and they were
undervalued than their
fundamental value, while their shares were acquired.
1.3. Firm Valuation in M&A
Chaplinsky and Schill (2000) in their notes about valuation
methods in mergers and
acquisition, stated that there are a few method tools available
in assessing the fundamental
fair value of the enterprise in M&A such as
dividend-cash-flow-based approach, earnings-
based approach, and assets-based approach. Here, the authors
explain the dividend-cash-
-
flow-based approach as, the value that derived from future cash
flows of the firm by
discounting it to the present day values. As well as, Malucha
(2009) and Sovbetov (2012), in
their researches, analyzed this method by breaking into two
parts: firstly, assuming that
enterprise has infinitive life and fixed future cash flows, and
secondly, enterprise with
infinitive life, but annual growth rate was associated to the
future cash flows. Here,
Chaplinsky and Schill (2000) underline that, %100 of profit
after tax (PAT) are considered as
net free cash flow disregarding the dividend payments and
retentions. They firstly, scheduled
annual cash flows of the firm assuming it has infinitive life,
and afterwards, they discounted
the cash flows with weighted average cost of capital (WACC) to
the present day values. This
WACC can be determined through CAPM calculations. On other hand,
Franceschi (2008)
and Sovbetov (2012) state that this method funded on many
assumptions and future
estimations. For instance, annual growth percentage g is
calculated through past years
figures, to be applied for future cash flow stream. As well as,
in case of annual growth (g)
penetrated, when the WACC (Cost of capital, shareholders return)
is smaller than g then this
method fails to be valid.
In case of earnings-based valuation approach, Franceschi (2008)
and Sovbetov (2012) state
that for public listed firms, the PE ratio should be multiplied
with firm's earnings to calculate
the fundamental value of the firm. In case of private companies,
the PE ratio should be
borrowed with similar type of company in same industry among
listed ones. Also, a dilution
percentage should be considered according to borrowing
conditions, restriction of shares and
information of private companies. The authors believe that it is
the major limitation of this
valuation method.
In case of assets-based valuation approach, it is one of the
mostly used methods where the PE
preserves its uncertainty, it lessens the future assumptions and
estimations. However,
according to Sovbetov (2012), it is very dependent to the book
values on balance sheet, and
may belie the acquirers or investors in assessing its fair
value. As the author and Franceschi
(2008) underlined, another limitation of this method is that, it
ignores the intangible assets.
Despite that the effects of these limitations were improved with
International Financial
Accounting Standards (IFRS), it still has lacks and difficulties
in representing the
fundamental value of the enterprises. In addition, in his report
Franceschi (2008) claim that,
the book value (henceforth referred as BV) dependency of this
method can be mitigated by
the formula that he mentioned in his study as following.
-
1.4. Research Objectives
The process of M&A from firm valuation till aftermath impact
was subjected to many
researches so far. Similarly, in this research the author
interests in researching the business
valuation techniques that used in M&A activities in UK, as
well as, the early impacts of
M&A process on the acquirer firms key financial indicators.
Here is the brief summary of
objectives of this research.
- To examine the impact of M&A on profitability of the
acquirer banks
- To examine the impact of M&A on liquidity of the acquirer
banks
- To examine the impact of M&A on capital structure of the
acquirer banks
- To analyze the bid strategies in UK bank acquisitions
- To analyze the firm valuation techniques in M&A in UK bank
industry
2. LITERATURE REVIEW OF EMPIRICAL STUDIES
Till today, many researchers such as have investigated both the
firm valuations techniques
during M&A activities (Chaplinsky & Schill (2000) in US;
Franceschi (2008) in Italy;
Malucha (2009); Sensarma & Jayadev (2010) in India;
Kyei-Mensah (2011) in US), and the
impacts of M&A on acquirer firms key financial indicators
(Sudarsanam et al (2001), Guest
(2007), and Tzonis (2008) in UK; Salleh et al (2013) in
Malaysia; Badreldin & Kalhoefer
(2009) in Egypt; Maditinos et al (2009) and Liargovas &
Repousis (2011) in Greece;
Dutescu et al (2013) in Romania; Akben-Selcuk &
Altiok-Yilmaz (2011) in Turkey;
Govender (2010) and Wilson (2013) in South Africa; Omah et al
(2013) and Akinbuli &
Kelilume (2013) in Nigeria; Gersdorff & Bacon (2009) and
Burns & Liebenberg (2010) in
US; Kumar & Bansal (2008), Khan (2011) and Poornima &
Subhashini (2013) in India;
Samitas et al (2008); Altunbas & Ibanez (2004), Renneboog
& Szilagyi (2007), and Cocris et
al (2011) in Europe; Cloodt et al (2006) in America, Asia,
Europe; Zhou et al (2011) in Asia
and Latin America; Simoes et al (2012) in Latin America).
2.1. Empirical Researches in Europe
Altunbas and Ibanez (2004) investigated the strategic
similarities of M&A activities and its
impact on the banks performance in Europe through the sample of
225 banks over the period
-
of 1995-2004. They utilized the descriptive, multivariate, and
regression analyses to assess
the impact. The authors found out that the bidder banks are more
cost efficient than target
ones. But on other hand, in case of credit risk profile, the
authors found that the targets have a
better view than the bidder ones. In addition, they also stated
that the efficiency and deposit
strategies of mergers are improving their performance in both
case of domestic and cross-
border M&As, but the dissimilarities in capital structures
could be conducive to lower
performance.
Cocris et al (2011) investigated the impact of M&As on
banking performance in Europe
through the 18 bank acquisitions over the period of 2001-2009
via utilizing the descriptive,
regression, and correlation analyses. As an aftermath, they
found that the M&A helps to
improve the technical efficiency of target banks. More
interestingly, the authors conclude that
the M&A activities do not have significant impact on market
value of the bidders shares.
Renneboog and Szilagyi (2007) studied the impact of M&A
activities on bond performance
in Europe through the 225 M&A events over the period of
1995-2004 by utilizing the
multivariate and regression analyses. As a result, they observed
that the bonds underperform
in cross-border M&As comparing to domestic ones. They also
stated that the European
bidders are less sensitive to the asset and financial risk
effects of M&As.
Liargovas and Repousis (2011) investigated the impact of
M&As on performance of Greek
banking sector through the sample of 26 bank acquisitions over
the period of 1996-2009 by
utilizing regression analysis. As a conclusion, they found the
similar result as the Cocris et al
(2011) found in their study, that the M&A activities do not
create a wealth on both bidder
and target banks. However, they got conflicted in results with
Cocris et al (2011), in case of
impact on share values that they observed positive abnormal
returns on both bidder and target
share values before ten days of announcement.
Maditinos et al (2009) studied the same subject with Liargovas
and Repousis (2011), exactly
in the same region. But the authors focused only on two bank
acquisitions in 1999: Ioniki-
Laiki bank and Pisteos bank. They exercised covariance,
regression, and correlation analyses,
and found that the M&A announcements have temporary impact
on both bidder and target
shares. This result showed the similarity with Liargovas and
Repousis (2011) ones.
Franceschi (2008) studied the valuation techniques in M&A
activities over the period of
2002-2007 in Italy through 19 consultant reports by utilizing
regression analysis. As a result,
-
he found that Italian consultant firms have used several
valuation methods with wide range of
exchange ratios, but the dividend discount model (excess
capital) was the most preferred one
among others.
Dutescu et al (2013) investigated the impact of M&As on
performance of target firms in
Romania through the sample observation of 10 M&A events over
the period of 2007-2009.
They examined the transaction analysis of these M&As with
the data of 2007, and compared
it with three-years post-acquisition profitability data of 2009.
As a result, they found that %80
of related activities in Romania were not profitable for the
target firms.
On the contrary to Dutescu et al (2013), Akben-Selcuk and
Altiok-Yilmaz (2011) studied the
impact of M&As on performance of acquirer firms in Turkey
through the sample of 63 M&A
events over the period of 2003-2007 by utilizing regression
analysis. As an aftermath, they
found that the returns of the stocks who involved in M&A
activities are higher than average
return of the industry. Moreover, they found that the
profitability of acquirers tends to decline
after conclusion of acquisition processes.
Guest (2007) in his study researched the impact of M&As on
executive compensation in UK
through 4528 M&A events over the period of 1984-2001, and
found significant pay increase
in the year following acquisition. But afterwards he observed a
decline in following two years
that offset the initial increase. He opines that, the reason of
initial increase could be the bonus
payments besides permanent salaries. Moreover, he found no
evidence of compensation is
related to the acquisition performance, whether it is good or
bad strategic decision, effects the
compensation increase.
Sudarsanam et al (2001) in their study of glamour acquirers and
value acquirers post-
acquisition performance in UK by analyzing 543 acquisitions
during 1982-1995, have found
that shareholders of value acquirers (low market-book value)
experienced higher returns than
glamour acquirers (high market-book value) in the first three
years of post-acquisition period.
Similarly, they found that the acquirers with low PE ratio have
outperformed the acquirers
with higher PE ratio over the first three years of
post-acquisition period.
Tzonis (2008) investigated the influences and reasons of
M&As in UK through the sample of
470 M&A events over the period of 1986-2005 by observing the
t-statistic test. As a result, he
concluded his research by stating that no evidence of M&A
impact on stock market and
business cycle at industrial level, but there is a strong one in
aggregate level.
-
Table 2: Summary of Empirical Research Results in Europe
Reference Origin Sample Period Model Result
Altunbas &
Ibanez (2004) Europe
225
Banks
1995-
2004
Descriptive Analysis
Multivariate
Regression
1. Bidders are more cost efficient than targets.
2. Total assets of bidders are 7 times larger
than targets.
3. ROE has increased after M&A.
Cocris et al
(2011) Europe
18
Bank
M&As
2001-
2009
Descriptive Analysis
Regression Analysis
Pearson Correlation
1. The M&A improves the technical efficiency
of the target banks.
2. The M&A does not
change market value of the bidder's shares.
Renneboog &
Szilagyi (2007) Europe
225
M&As
1995-
2004
Multivariate
Regression
1. European bidders are less sensitive to the
asset and financial risk effects of M&As.
2. Bonds underperform in cross-border M&As
relative to domestic deals.
Liargovas &
Repousis (2011) Greece
26
Bank
M&As
1996-
2009 Regression Analysis
1. The M&As do not create a wealth on bidder
or target banks.
2. Before 10 days of announcement the share
values of bidder and target banks get positive
abnormal returns.
Maditinos et al
(2009) Greece
2 Bank
M&As 1999
Descriptive Analysis
Autocorrelation
Autocovariance
Autoregressive
The announcements have temporary impact on
the value of bidder and target stocks.
Franceschi
(2008) Italy
19
Reports
2002
2007 Regression Analysis
The Dividend Discount Model - Excess Capital
is the most used valuation method.
Dutescu et al
(2013) Romania
10
M&As
2007-
2009 Transaction Analysis
%80 of M&As in Romania in 2007 were not
profitable.
Akben-Selcuk
& Altiok-
Yilmaz (2011)
Turkey 63
M&As
2003-
2007 Regression Analysis
1. Returns for stocks who involved in M&As
exceed average industry returns.
2. Profitability of acquirers declined after
acquisitions.
Guest (2007) UK 4528
M&As
1984-
2001
Regression Analysis
t-test
1. There is strong increase of pay in cross-
border acquisitions at international levels, but
no of higher pay increase in domestic ones.
2. There is no evidence of differences in pay
changes between public and private
acquisitions.
Sudarsanam et
al (2001) UK
543
M&As
1982-
1995 t-test
1. Shareholders of value acquirers experienced
higher returns than glamour acquirers.
2. The acquirers with low PE ratio
outperformed the higher ones.
Tzonis (2008) UK 470
M&As
1986-
2005 t-test
There is no evidence that M&As have impact
on stock market and the business cycle at
industrial level, but there is strong one in
aggregate level.
Source: (The authors own elaboration)
-
2.2. Empirical Researches in America
Gersdorff and Bacon (2009) examined the M&A activities in
US, and its impact on market
efficiency, through observing 20 M&A events in the period of
2007 by utilizing regression
analysis tool. As a result, they found that there is an action
in stock prices of acquirers only
after thirty days from announcement. This result is conflicting
with Tzonis (2008), Cocris et
al (2011), and Liargovas & Repousis (2011), but it is
consistent with Akben-Selcuk and
Altiok-Yilmaz (2011), and Sudarsanam et al (2001) findings.
Burns and Liebenberg (2010) pursued an observation about US
takeovers in foreign markets
over the period of 2008-2009 by analyzing 1967 M&A events
via multivariate regression
analysis tool. As a result, they found that US acquisitions had
a positive impact on emerging
market firms, and small impact on developed markets.
Kyei-Mensah (2011) investigated the impact of M&A activities
on wealth of US firms
through analyzing 401 M&A events over the period of
1988-2008 by utilizing descriptive,
regression, correlation, students test, and Wilcoxon-signed rank
test analyses. As an
aftermath, he found that after M&A announcements the
cumulative abnormal returns of
acquiring shareholders tend to decline significantly within
comparison to the acquired ones.
Zhou et al (2011) in their research of bank M&A activities
in emerging markets of Asia and
Latin America, found that the announcements create a return for
target bank shareholders, but
there is no evidence that the acquirers wealth are decreased.
They pursued this observation
through 132 bank M&A events over the period of 1998-2009 by
exercising multivariate
regression analysis tool.
Simoes et al (2012) pursued the similar investigation as
Gersdorff and Bacon (2009) did in
2009. In this study, the authors sampled the region considering
only Latin American
countries such as Argentina, Brazil, and Chile. As an
observation nearly 53 M&A events over
the period of 1995-2008 were analyzed. It means 742 rows of data
were penetrated through
regression analysis. As a result, they found that M&A
announcements signalled value
creations in above mentioned countries stock markets.
-
Table 3: Summary of Empirical Research Results in America
Reference Origin Sample Period Model Result
Gersdorff &
Bacon (2009) US
20
M&As 2007 Regression Analysis
There is an action in stock prices of acquirers 30
days after announcement.
Burns &
Liebenberg
(2010)
US 1967
M&As
2008-
2009
Multivariate
Regression
U.S. acquisitions have a positive impact on
emerging market firms and small impact on
developed markets.
Kyei-Mensah
(2011) US
401
M&As
1988-
2008
Descriptive Analysis
Regression Analysis
Correlation Analysis
Wilcoxon-signed rank
t-test
After announcement, cumulative abnormal
returns of acquiring shareholders declined
significantly within comparison to the acquired
ones.
Zhou et al
(2011)
Asia &
Latin
America
132
M&As
1998-
2009
Multivariate
Regression
The M&A announcements in Asia and Latin
America created return for the shareholders of
target banks, whereas there was no evidence that
the wealth of acquirer shareholders is diminished.
Simoes et al
(2012)
Latin
America
53
M&As
1995-
2008 Regression
M&A news signalled value creation in the
Argentinean, Brazilian, and Chile stock market.
Source: (The authors own elaboration)
2.3. Empirical Researches in Africa
Badreldin and Kalhoefer (2009) studied the impact of M&As on
Egyptian banks
performances, by analyzing 10 banks M&A events through the
period of 2002-2007. They
selected three-years pre-acquisition data, and three-years
post-acquisition data. They
compared the pre and post profitability data, and found no
evidence of M&A impacts on
banks profitability.
Govender (2010) in his study investigated the relationship
between the accounting quality
and performance of acquirers by analyzing 797 South African
acquisitions through the period
of 2001-2009. The author found similar result as Sudarsanam et
al (2001) found, that the
value acquirers outperformed the glamour acquirers in the
post-acquisition period. Moreover,
the author observed that an increase in earnings of the glamour
acquirers in last three years of
pre-acquisition period, and a decrease in earnings in first
three years of post-acquisition
period.
Akinbuli and Kelilume (2013) examined the impact of M&A
activities on firms growth and
profitability in Nigeria. They sampled 10 banks M&A events
over the period of 2004-2008,
by utilizing regression analysis. As a result, they found that
the impact of M&A activities
have temporary effects on firms growth and profitability.
Therefore, they as a conclusion they
stated that M&As are not a solution for the financial
distress in Nigeria bank industry.
-
Omah et al (2013) pursued an investigation in the same region
and industry with Akinbuli
and Kelilume (2013). As a difference, the authors here, sampled
20 banks M&A events over
the period of 2001-2010 by aiming to measure the M&A effects
on shareholders value. As a
aftermath of regression analysis, they observed a marginal
increase in shareholders value
creation.
Wilson (2013) in his study in South Africa, investigated the
trends and determinants of
M&A activities targeting the country firms, by observing
1072 M&A events through the
period of 1991-2011 via regional, Poisson distribution, negative
binomial regression, and
variance analyses tools. As a result, she found that UK and US
are the main acquirers of
South Africa firms. Moreover, as determinants of M&A, she
found the share price, market
size, and macroeconomic stability are main factors in the
country in M&A activities.
Table 4: Summary of Empirical Research Results in Africa
Reference Origin Sample Period Model Result
Badreldin &
Kalhoefer (2009) Egypt
10
Bank
M&As
2002-
2007 Comparative Analysis
There is no evidence that M&A has impact on
banks profitability.
Govender (2010) South
Africa
797
M&As
2001-
2009
Descriptive Analysis
T-test
1. The value acquirers outperformed the
glamour acquirers in the post-acquisition
period.
Akinbuli &
Kelilume (2013) Nigeria
10
Banks
2004-
2008 Regression Analysis
The M&As helps improve financial distress
only on temporary basis.
Omah et al
(2013) Nigeria
20
Banks
2001-
2010 Regression Analysis
There is a marginal positive impact of M&As
on shareholders value creation.
Wilson (2013) South
Africa
1072
M&As
1991-
2011
Descriptive Analysis
Regional Analysis
Poisson Distribution
Negative Binomial
Regression
Variance
1. United Kingdom and United States of
America are the main acquirers of South Africa
firms.
2. Share prices, Market size, return rate, and
macroeconomic stability are important
determinants of location of M&A activity.
Source: (The authors own elaboration)
-
2.4. Empirical Researches in Asia
Cloodt et al (2006) in their research about impact of M&As
on innovative performance of
firms in high-tech industries, found that non-technological
M&As have negative impact on
acquirers performance due to its extra costs in repairing the
disruptions that occurred in
adoption period. They pursued this research through 2429 M&A
events in America, Asia, and
Europe over the period of 1985-1994 by utilizing regression
analysis.
Kumar and Bansal (2008) investigated the impact of M&A
activities on Indian firms
performance, through sampling 74 M&A events related to the
period of 2000-2003. By
comparing the gathered data, the found that %60 of acquirers
improved their performance in
post-acquisition period. Meantime, the authors state that the
working capital and gearing ratio
are increased in post-acquisition period.
Khan (2011) in his research aimed to explore the rationales and
driving forces of M&A
activities in India banking sector, by focusing on 4 bank
M&A events over the period of
2005-2011 via t-statistic test tool. As a result, he found
significance difference between pre
and post merger ratios such as NP (net profit), ROCE, ROE, and
DE(debt-equity).
Sensarma and Jayadev (2010) explored the same country by the
sample of 27 bank merger
events over the period of 1986-2003. He aimed to assess the
efficiency, economic scale, and
valuation effect of these merger events by exercising regression
analysis. As a result, he
found that in forced mergers, none of the shareholders gain
value, but in voluntary mergers,
the bidders shareholders gain more that targeted ones.
Poornima and Subhashini (2013) pursued an investigation aiming
to assess the impact of the
type of M&As on Indian firms performance by observing 33
M&A events in the period of
2009-2010. They utilized the paired t-test analysis, and found
that the type of mergers is
irrelevant to the acquirers performance in Indian
industries.
Finally, Salleh et al (2013) in their study, measured the
efficiency of M&As in Malaysian
telecommunication industry by applying multiple regression
analysis to the 6 banks data
relating the period of 2005-2010. As a result, they found that
asset efficiency of acquirers
tend to decrease after M&A. Moreover, they observed that
high sequence of acquisitions
decreases the asset efficiency of acquirers.
-
Table 5: Summary of Empirical Research Results in Asia
Reference Origin Sample Period Model Result
Cloodt et al
(2006)
America,
Asia,
Europe
2429
M&As
1985
1994 Regression Analysis
Non-technological M&As have negative
impact on acquirer's performance due to its
extra resources to repair the disruptions.
Kumar &
Bansal (2008) India
74
M&As
2000-
2003 Comparative Analysis
Acquirers performance has been improved in
post-M&A period.
Khan (2011) India 4 Banks 2005-
2011 t-test
There is significance difference between the
pre and post merger NP, ROCE, ROE, DE.
Sensarma &
Jayadev (2010) India
27
Banks
1986-
2003 Regression Analysis
In forced mergers, none of shareholders
(bidder/target) gain value. In voluntary
mergers, the bidder's shareholders gain more
than the targeted ones.
Poornima &
Subhashini
(2013)
India 33
M&As
2009-
2010 Paired t-test
The type of mergers does not have impact on
acquirer's performance.
Salleh et al
(2013) Malaysia
6 Bank
M&As
2005-
2010 Multiple Regression
1. Asset efficiency of acquirers tend to
decrease after M&A.
2. High sequence of acquisitions decreases the
asset efficiency of acquirers.
Source: (The authors own elaboration)
3. RESEARCH METHODOLOGY
3.1. Type of Research
Starting with theoretical bases, and following the empirical
research results, this research will
make an observation as parallel with the characteristics of
deductive reasoning approach. As
the impacts of M&A on key financial ratios in UK bank sector
over the period of 2000-2013,
are aimed to be measured, the type of this research should be
based on quantitative approach.
3.2. Data Description & Analysis
All banks which involved to the M&A activities in the period
of 2000-2013 should be sorted
out, and their data should be gathered from annual reports that
is the secondary data source.
As key financial indicators the profitability, efficiency, and
structural ratios are involved to
the analysis. These ratios are described below.
a) Profitability Ratios: Net Profit (NP), ROE, ROA, ROCE
b) Efficiency Ratios: Current Ratio (CR), Liquidity Ratio
(LIQ)
c) Structural Ratios: Debt-Equity (DE), Total Debt to Total
Capital (DC)
-
At least 25 M&A events are aimed as observation number for
this research, and taking into
consideration of twelve-years data, that will formulate a table
with 350 rows of data. All the
related data are aimed to be sorted out, and penetrated through
the regression and correlation
analysis to observe the impacts.
3.3. Research Framework
First concept of the research is based on pre and post M&A
periods. Five-years pre M&A
period, and five-years post M&A period would be satisfactory
to compare and assess the
M&A impacts on banks key financials. Second concept of the
research is based on evaluating
the impacts with regression and correlation analysis without
classifying as pre and post
periods. In addition, both of these concepts would involve the
examination of the most
accurate valuation techniques in UK banking M&A
activities.
3.4. Research Hypothesis
The following hypotheses are formulates as research
questions.
H1: There is a significant impact of M&As on profitability
of the banks.
H2: There is a significant impact of M&As on efficiency of
the banks.
H3: There is a significant impact of M&As on capital
structure of the banks.
H4: All valuation methods of banks in UK have similar results,
therefore their preference are
irrelevant.
3.5. Research Difficulties
According to the Sovbetov (2013), the banks have different
structure than other financial
institutions. The differences in regulatory regime, and the
rules described in the Basel
Accords, distinct the banks from others. One another limitation
is the lack of transparency of
the bank reports, as Sovbetov (2013) underlined. The reliability
of this research would base
on annual published reports of the related banks. In addition,
as a final limitation, the
metaphor of too big to fail gives to banks a privilege effigy
with government backing
supports and tolerance. Therefore, investigate these firms
become more difficult than other
financial institutions.
-
4. TIMESCALE
In order to manage the time efficiently, the following grant
chart was formulated by the
author of this research proposal.
Figure 1: Time Schedule of this Research Proposal
Source: (Designed by author)
Literature Review
Market Observation
Empirical Results
Methodology
Data Collection
Data Analysis
-
5. REFERENCES
Akben-Selcuk, E. & Altiok-Yilmaz, A. (2011). The Impact of
Mergers and Acquisitions on
Acquirer Performance: Evidence from Turkey. Business and
Economics Journal, Vol.11,
No.22, pp.1-8.
Akgobek, I. (2012). Mergers and Acquisitions as a Growth
Strategy. International
Conference on Business, Economics, and Behavioral Sciences.
April. Pattaya.
Akinbuli, S.F. & Kelilume, I. (2013). The Effects of Mergers
and Acquisition on Corporate
Growth and Profitability: Evidence from Nigeria. Global Journal
of Business Research.
Vol.7, No.1, pp.43-58.
Altunbas, Y. & Ibanez, D.M. (2004). Mergers and Acquisitions
and Bank Performance in
Europe: The role of strategic similarities. European Central
Bank. Working Paper Series
No.398, October, pp.1-35.
Badreldin, A. & Kalhoefer, C. (2009). The Effect of Mergers
and Acquisitions on Bank
Performance in Egypt. Faculty of Management Technology. German
University in Cairo.
Working Paper No.18. October, pp.1-15.
Burns, N. & Liebenberg, I. (2010). The impact of U.S.
takeovers in foreign markets: Do they
impact emerging and developed markets differently? Journal of
Corporate Finance, Vol.17,
No.4, September. pp.1028-1046.
Cai, Y. (2013). The Impact of Merger and Acquisition
Announcements on the US Utility
Industry. Master of Finance. Saint Mary's University.
Chaplinsky, S. & Schill, M.J. (2000). Note on Valuation
Analysis for Mergers and
Acquisitions. Darden School Foundation, University of Virginia,
Charlottesville, VA.
Cloodt, M., Hagedoorn, J. & Van Kranenburg, H. (2006).
Mergers and Acquisitions: Their
effect on the innovative performance of companies in high-tech
industries. Research Policy,
Vol.35, No.x, pp.642-654.
Cocris, V., Nichetean, A.L. & Andries, A.M. (2011). The
Impact of Mergers and Acqusitions
on Banking Performance. Review of Economic & Business
Studies, Vol.4, No.1, pp.79-92.
Dutescu, A., Ponorica, A.G. & Stanila, G.O. (2013). Effects
of Mergers and Acquisitions on
Financial Performance of the Target Company. Nicolae Titulescu
University, Challenges of
the Knowledge Society.
Franceschi, L.F. (2008). Valuation of Banks in Mergers.
Accademic Affilation, Catholic
University of Milan. February.
Goddard, J., Molyneux, P. & Zhou, T. (2012). Bank Mergers
and Acquisitions in Emerging
Markets: evidence from Asia and Latin America. Vol.18, No.5,
pp.419-438
-
Govender, A. (2010). Accounting Earnings Quality and Merger
& Acquisition Performance
in South Africa. Master of Management in Finance and
Investments. WITS Business School.
Guest, P. (2007). The Impact of Mergers and Acquisition on
Executive Pay in the United
Kingdom. Centre for Business Research, University of Cambridge.
Working Paper No. 354.
September.
Heera, S. (2013). UK Mergers and Acquisitions fall during 2010.
Experian Analysis.
Retrieved from: <
http://press.experian.com/United-Kingdom/Press-
Release/uk%20mergers%20and%20acquisitions%20fall%20during%202010%20according%
20to%20experian%20analysis.aspx> [Accessed 19 July 2013]
Ismail, T.H., Abdou, A.A. & Annis, R.M. (2011). Review of
Literature Linking Corporate
Performance to Mergers and Acquisitions. The Review of Financial
and Accounting Studies.
Vol.x, No.1, pp.89-104.
Khan, A.A. (2011). Merger and Acquisitions (M&As) in the
Indian Banking Sector in Post
Liberalization Regime. International Journal of Contemporary
Business Studies. Vol.2,
No.11, November, pp.31-45.
Kumar, S. & Bansal, L.K. (2008). The Impact of Mergers and
Acquisitions on Corporate
Performance in India. Management Decision. Vol.46, No.10,
pp.1531-1543.
Kyei-Mensah, J. (2011). Wealth Effects of Mergers and
Acquisitions for U.S. Firms: using
alternative pricing models. PhD Thesis, Finance and Accounting,
Aston University, March.
Liargovas, P. & Repousis, S. (2011). The Impact of Mergers
and Acquisitions on the
Performance of the Greek Banking Sector: An Event Study
Approach. International Journal
of Economics and Finance Vol.3, No.2, May, pp.89-100.
Maditinos, D.,Theriou, N. & Demetriades, E. (2009). The
Effect of Mergers and Acquisitions
on the Performance of Companies The Greek Case of Ioniki-Laiki
Bank and Pisteos Bank.
European Research Studies,Vol.XII, No.2. pp.111-130.
Malucha, M. (2009). Business Valuation in Mergers and
Acquisitions. University of
Szczecin. Faculty of Economics and Management.
Motis, J. (2007). Mergers and Acquisitions Motives. Toulouse
School of Economics,
University of Crete, Working Papers No.730.
Omah, I., Okolie, J.U. & Durowoju, S.T. (2013). Mergers and
Acquisitions: Effects on
Shareholders Value Evidence from Nigeria. International Journal
of Humanities and Social
Science. Vol.3, No.6, March.
Poornima, S. & Subhashini, S. (2013). Impact of Mergers and
Acquisitions Across Industries
in India. International Journal of Management Research and
Development, Vol.3, No.2,
April-May, pp.113-125.
-
Reed, M. & Babool, M.A. (2003). Factors Affecting
International Mergers and Acquisitions.
International Food and Agribusiness Management Review. Vol.6,
No.4, pp.63-77.
Renneboog, L. & Szilagyi, P.G. (2007). Bond Performance in
Mergers and Acquisitions: The
Impact and Spillover of Governance and Legal Standards. ECGI
Finance Working Paper
Series No.125. Rochester, NY: Social Science Electronic
Publishing Inc.
Roberts, A., Wallace, W., & Moles, P. (2003). Mergers and
Acquisitions. Edinburgh
Business School, Heriot-Watt University. UK.
Salleh, W.A., Mahmood, W.M., Sufian, F., Jamarudi, E.M., Nair,
G.K. & Ahmad, S. (2013).
The Efficiency of Mergers and Acquisitions in Malaysia Based
Telecommunication
Companies. Asian Social Science, Vol.9, No.2, pp.12-23.
Samitas, A., Kenourgios, D. & Tsakalos, I. (2008). The
Impact of Mergers and Acquisitions
on World Energy Enterprises Stock Returns. International Journal
of Business Research.
Vol.8, No.1, pp.191-201.
Santos, J.C., Ferreira, M.P., Reis, N.R. & Almeida, M.R.
(2012). Mergers & Acquisitions
Research: A bibliometric study of top strategy and international
business journals. Center of
Research in International Business & Strategy. Working Paper
No: 91. May.
Sensarma, R. & Jayadev, M. (2010). Efficiency, scale
economies and valuation effects:
evidence from bank mergers in India. International Journal of
Financial Services
Management, Vol.4, No.4, pp.311-337
Simoes, M.D., Macedo-Soares, T.D., Klotzle, M.C. & Pinto,
A.C.F. (2012). Assessment of
Market Efficiency in Argentina, Brazil and Chile: an Event Study
of Mergers and
Acquisitions. Brazilian Administration Review, Vol.9, No.2,
Art.6, pp.229-245.
Sovbetov, Y. (2012). Financial Markets and Investment Analysis.
London School of
Commerce, Cardiff Metropolitan University, December.
Sovbetov, Y. (2013). Relationship between Capital Structure
& Profitability: Evidence from
UK Banking Industry Over the Period of 2007-2012. MBA Thesis,
Cardiff Metropolitan
University, UK.
Sudarsanam, S., Mahate, A.A. & Freeman, A. (2001). Glamour
Acquirers, Method of
Payment and Post-Acquisition Performance: The UK Evidence.
Journal of Empirical
Finance, Vol.5, No.x, pp.27-46.
Tzonis, L.V. (2008). Driving Forces Behind Mergers and
Acquisitions Activity: The
Aggregate Economic Activity and the Stock Market. PhD Thesis,
University of Northumbria,
May.
Von Gersdorff, N. & Bacon, F. (2009). U.S. Mergers and
Acquisitions: A Test of Market
Efficiency. Journal of Finance and Accountancy, Vol.1, No.8,
pp.1-8.
-
Wang, J. (2007). Motives and Effects of Mergers and
Acquisitions. MA in Finance and
Investment Thesis. University of Nottingham. September.
Wilson, M.K. (2013). Trends and Determinants of Mergers and
Acquisitions Targeting South
Africa 1990-2011. Financial Globalization and Sustainable
Finance Conference, Cape Town,
29-31 May.