The financial impact that mergers and acquisitions have on the acquiring company : an analytical study of both the short and long term effects

Abstract

This study is aimed to identify and compare the impact that mergers and acquisitions have on the acquiring company’s financials and prosperity in a short and long period of time. Throughout the years, the importance and value of mergers and acquisitions become a popular method used by various companies to achieve specific corporate objectives. However, some studies report that mergers and acquisitions had a positive influence on the companies’ success, whilst others found that this influence was either neutral or even negative. This study is based on a sample of announcements between the years 2013 and 2015 which were completed as a merger and acquisition and focusing on the Health care sector companies in the European Region. The study’s literature review consists of previous research which operated studies on the impact of mergers and acquisitions on the company performance from different countries and industries. For the short term, an event study approach was selected and this aided the author to analyse the results obtained from the average abnormal returns and the cumulative average abnormal returns. For the long term, the author used financial ratios and the Wilcoxon Signed Rank Test. The outcomes of this study recommend that on average, around an M&A process in the short term the acquiring company tends to achieve positive returns for the first few days and then starts to decline, and for the long term no significant impact or change is found between the pre and post merger and acquisition. Findings obtained give a clear picture of the expected affect that mergers and acquisitions may have on the company, therefore it will help the company’s management in deciding whether to take the option of entering into an M&A deal.