Recent mergers and acquisitions in Maltese listed companies : a financial perspective

Abstract

Purpose: The purpose of this study is to assess the effectiveness of mergers and acquisitions (M&As) on acquirers’ financial performance, to examine the market reaction to M&A announcements and to obtain further insights on the perceived value arising from M&A activity. Design: The study’s objectives were achieved by a review of acquiring companies’ financial information, through an Event Study on acquirers’ share price movements and through ten semi-structured interviews held with involved companies’ representatives and with local stock brokers to obtain their perceived value. Findings: The only financial aspect which improved after M&A activity was growth in earnings before interest, tax, depreciation and amortisation. Overall, there was no discernible impact on return on assets, operating cash flow or financial gearing, while operating efficiency declined. The market was generally non-reactive within relatively short timeframes around announcements. However, a positive reaction within longer estimation periods could be observed. Acquirers’ and stock brokers’ perceived value varied considerably, with the latter being more conservative and convergent to the researcher’s financial result assessment. Conclusions: This study concludes that the few M&A cases which improved their profitability also showed enhanced operational efficiency and sound financing decisions. However, the attainment of such results was believed to be quite challenging. Moreover, the local market was deemed not to be a reliable indicator of M&A success and its positive perception was likely to have reflected the shallow trading activity of the Maltese market. Key factors, namely effective due diligence and successful integration were perceived to contribute to M&A success. Value: This study would particularly be useful to local stock brokers seeking to create clients’ value by maximising returns on any investment. Investors are also expected to improve their understanding of M&As’ performance implications. Furthermore, this study could provide corporate managers with insights into the dynamics of M&A activity.