Could the pre-M&A performances predict integration risk in cross-border M&As?

Abstract

Purpose

Due to the high failure rate of the M&A strategy, this paper aims to raise the question of whether the pre-M&A performances could predict integration success in cross-border M&As with the aim of reducing the integration risk. Cross-border M&A is considered an important strategy for gaining access to foreign markets, but at the same time, cross-border M&As involve a high risk for failure, particularly due to the problematic integration stage in cross-border M&As.

Design/methodology/approach

The study presents a research model that includes six pre-M&A performances – the revenue and profitability of the acquirer and the target, the revenue ratio and profitability ratio – with the aim of analysing if the pre-M&A performances could predict integration success. The sample of the study includes 68 public firms that were engaged in cross-border M&As from 13 countries. The database of the study is based on 272 annual reports (10-K) of the public companies that are included in the sample.

Findings

The results show that the revenue and profitability of the acquirer and the target predict integration success. However, the revenue ratio predicts integration success, but not the profitability ratio. The results also show that a larger target leads to a complicated integration process that ends in a failure of the integration stage, while a larger acquirer could help to facilitate the integration stage. The study also indicates that buying a small target in relation to the acquirer decreases the risks of the integration stage. Moreover, the pre-performances of the acquirer more predict integration success compared to the pre-performances of the target.

Originality/value

The study suggests that buying an inefficient target creates opportunities for removing redundancies, while buying profitable target may hinder the possibilities for eliminating duplicate jobs and operations. This mixed effect highlights the challenges in implementing of M&A strategy in cross-border-M&As.

Citation

Rozen-Bakher, Z. (2018), "Could the pre-M&A performances predict integration risk in cross-border M&As?", International Journal of Organizational Analysis, Vol. 26 No. 4, pp. 652-668. https://doi.org/10.1108/IJOA-07-2017-1199