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Grow externally, but do your homework. The impact of pre-event operating performance on the transaction outcome.
Even though corporate M&A have been widely analyzed in the academic literature, the results of those studies are highly contradicting. For this reason, M&A research is often described as a “theory of single cases”. This paper turns to the intrinsic intent of acquisition as a growth strategy and investigates in-depth the key characteristics of the strategic acquisitions for growth. Based on the principles of value-based management and fundamental performance of the acquiring company it develops a framework defining the strategic acquisitions for growth and outlines how do they differ from other transactions, e.g. restructuring mergers. Additionally, it empirically analyzes how do the key fundamental determinants of the acquiring companies influence investors’ reaction around the announcement and therefore, the value created through the transaction. The results show that a successful strategic acquisition is rather a matter of thoughtful financial planning. Overall, it can be concluded that the right choice of strategy based on the intrinsic pre-event performance of the acquiring firm as well as knowledge where does the value comes from, can significantly impact the outcome and profitability of transaction.