Measuring Value Creation in M&As - A comparison between related and unrelated firms
The global mergers & acquisitions (M&A) market is immense. In 2007, M&A volume reached an unprecedented value of $4,500 billion globally. One major concern for M&A activity, however, is whether the transaction creates value or not. Previous studies show that approximately 60-80 percent of all M&As fail to create value. As a result, much effort has been put into investigating sources of value creation in M&A contexts. Many studies single out firm relatedness as an important factor, i.e. the extent to which merging firms share similarities. While plentiful research has been conducted on the subject of firm relatedness in the context of value creation, it has failed to produce consistent results. This study aims to extend previous research on firm relatedness by introducing the role of intellectual capital in value creation processes pertaining to M&A activity. More specifically, the study theorizes that through the ability to pool two sets of intellectual capital with divergent configurations, unrelated M&As should be expected to create greater value than related ones. This is tested by calculating pre- and post-consummation values of intellectual capital for a sample of 15 related and 15 unrelated M&As. Cumulative abnormal returns are also calculated as a measure of each deals’ value creation potential according to market expectations. The findings of this study suggest that the unrelated M&As consistently seem to outperform related ones in terms of gains to the value of intellectual capital and in terms of market expectations. However, the statistical significance of the findings is insufficient for valid conclusions to be drawn. We argue that further research should be made in order to investigate if statistical significance can be achieved.