REPETITIVE CROSS-BORDER
MERGERS & ACQUISITIONS
Amrita Nain, Kyeong Lee, and Emma Xu
2014 LFE Workshop in Financial Economics
Higher School of Economics, ICEF
Motivation
Cross-border mergers and acquisitions (M&A)
• Recent trend:
• Total value of M&A is $2.6 trillion
• 36% is CBMA (Thompson Reuter, 2012)
• Many complexities and risks
• Cultural difference (Barkema et al., 1996; Ahern et al. 2012)
• Information environment (Louis, 2013)
• Economic nationalism (Dixit, 2011; Dinc and Erel, 2013)
• Law and regulation (Rossi and Volpin, 2004; Dikova et al. 2010)
Motivation
Yet, many firms repeat cross-border deals in the same target
country despite the risk and complexity.
Why?
Unlike other papers,
We examine SERIAL cross-border M&As.
• The effect of firms’ repetitive deal making on deal structure and
shareholder wealth.
• Whether learning is induced from repetitive acquisitions in the
same country.
• Or managerial hubris?
Main findings
As acquirers make more deals in the same country,
• The time between successive deals declines
• The percentage of ownership stake acquired increases
• The percentage of cash payment increases
Evidence of learning:
• Where learning gains exist,
• The time between deals declines more sharply and,
• bidder announcement returns increase as they make more deals
Contributions
• Learning in M&A
• Repeat cross-border M&A is an ideal setup
• What firms do in the face of risks in foreign countries?
• Explain why many firms go back despite risks
• The value of cross-border M&A
• Bidder CAR can vary across different stages of learning
Data
• Cross-border M&A deals between 50 countries during 1990-2010
• SDC: deal-specific information e.g., announcement date, payment, etc.
• Stock returns
• CRSP for US firms
• Datastream for non-US firms
• Financial statement
• Compustat for US firms
• Datastream for non-US firms
• Macro-level variables
• Datastream MSCI: Stock market index returns
• World Bank: GDP
• Penn World Table: Currency
Empirical specification
• Deal order number in the same target country (DONC)
• Time between successive deals (TBD)
• Percentage of ownership stake acquired
• Percentage of consideration paid in cash
• Bidder announcement returns
Figure 1
% acquired
TBD
% cash
900.00
101.00
84.00
800.00
100.00
82.00
700.00
99.00
80.00
600.00
98.00
500.00
97.00
400.00
96.00
300.00
95.00
200.00
94.00
100.00
93.00
78.00
76.00
74.00
72.00
70.00
92.00
0.00
0
1
2
3
4
5
6
0
1
2
3
4
5
6
68.00
0
1
2
3
4
5
6
Table 2. Deal characteristics
Deal order number in the country (DONC)
Obs.
TBD
%Acquired
%Cash pmt
1st - 5th deals
52,590
835.17
93.11
69.30
6th - 10th deals
1,021
384.67
97.98
77.81
11th - 15th deals
229
280.17
99.41
81.44
16th deal or more
100
262.60
100.00
79.61
Empirical specification
• Regression model:
• Trend variable: control for time trend
• Macroeconomic variables: GDP per capita, GDP growth, …
• Fixed effects: acquirer-/target-fixed effects, year fixed effects
Table 4. Repeat cross-border deals
• Panel B
Independent variable
DONC
Trend
ΔGDP per capita
ΔGDP growth rate
ΔStock market returns
ΔCurrency valuation
Acquirer country F.E.
Target country F.E.
Year F.E.
Standard error clustering
Obs.
R²
TBD
Dependent variable
%Acquired
%Cash payment
[1]
[2]
[3]
Coeff.
-76.560***
73.627***
0.031
1.063
-0.521***
-6.068**
t-stat
-5.46
8.46
0.16
0.53
-2.65
-2.38
Yes
Yes
Yes
Target country
11,260
0.152
Coeff.
0.206***
0.099***
0.009***
0.019
-0.001
-0.062**
t-stat
4.54
2.62
2.75
0.86
-1.54
-2.12
Yes
Yes
Yes
Target country
50,544
0.102
Coeff.
1.429***
-0.199
-0.011
0.177*
0.001
-0.153
t-stat
11.55
-1.22
-1.23
1.80
0.24
-1.60
Yes
Yes
Yes
Target country
11,535
0.106
Table 4. Repeat cross-border deals
• Panel C
Dependent variable
TBD
[1]
Independent variable
DONC
DONC²
Trend
ΔGDP per capita
ΔGDP growth rate
ΔStock market returns
ΔCurrency valuation
Acquirer country F.E.
Target country F.E.
Year F.E.
Standard error clustering
Obs.
R²
Coeff.
-282.453***
16.580***
75.088***
-0.018
1.920
-0.511***
-6.618***
%Acquired
[2]
t-stat
-7.35
5.30
10.46
-0.11
1.01
-2.73
-2.76
Yes
Yes
Yes
Target country
11,260
0.166
Coeff.
0.807***
-0.066***
0.094**
0.009***
0.019
-0.001
-0.062**
t-stat
3.50
-2.81
2.46
2.82
0.84
-1.54
-2.10
Yes
Yes
Yes
Target country
50,544
0.102
%Cash payment
[3]
Coeff.
4.893***
-0.350***
-0.241
-0.010
0.173*
0.001
-0.144
t-stat
4.49
-3.85
-1.47
-1.09
1.76
0.26
-1.51
Yes
Yes
Yes
Target country
11,535
0.106
Are firms really learning?
• Hayward (2002), Aktas et al. (2013)
Learning gains
Experience building
Memory loss
TBD
• Country-specific learning
Table 5. Experience building vs. memory loss
Independent variable
Short TBD (<25%)
Coeff.
t-stat
Dependent variable = Abnormal TBD
Long TBD (>75%)
Short TBD (<25%)
Coeff.
t-stat
Coeff.
t-stat
DONC
-66.540**
-2.48
106.509
1.05
DONC²
7.056***
2.75
-7.405
-0.88
Long TBD (>75%)
Coeff.
t-stat
Deal order number (DON)
-3.265
-0.99
18.775*
1.91
DON²
0.056
0.57
-0.407
-1.37
3.372
0.035
-0.339
0.395**
0.236
1.02
0.21
-0.25
2.07
0.17
-33.460
-0.108
3.243
0.306
-6.473*
-0.39
-0.25
0.78
0.39
-1.69
Trend
ΔGDP per capita
ΔGDP growth rate
ΔStock market returns
ΔCurrency valuation
2.823
0.037
-0.183
0.396**
-0.097
0.83
0.22
-0.13
2.06
-0.07
-36.983
-0.110
3.144
0.272
-6.631*
-0.44
-0.25
0.78
0.35
-1.79
Acquirer country F.E.
Yes
Yes
Yes
Yes
Target country F.E.
Yes
Yes
Yes
Yes
Year F.E.
Yes
Yes
Yes
Yes
Target country
Target country
Target country
Target country
Obs.
2,801
2,821
5,621
5,639
R²
0.123
0.187
0.114
0.187
Standard error clustering
Merger announcement return
Bidder CAR decreases as they make more deals
• Fuller, Netter, & Stegemoller (2002), Bertrand & Betschinger (2012)
• Hubris: Billett & Qian (2008)
• Not necessarily hubris: Ahern (2010)
• Learning: Aktas, DeBodt, & Roll (2009, 2013)
• We estimate CAR using two factor market model (Griffin (2002))
Table 7. Bidder announcement returns
Independent variable
DONC
DONC²
Acqurier size
Acquirer M/B
Public target
Related M&A
Stock deal
Trend
ΔGDP per capita
ΔGDP growth rate
Δstock market returns
Δcurrency valuation
Acquirer country F.E.
Target country F.E.
Year F.E.
Standard error clustering
Obs.
R²
CAR(-1, +1)
CAR(-2, +2)
CAR(-3, +3)
[1]
[2]
[3]
Coeff.
-0.146**
0.010**
-0.088***
0.001
-0.230
0.017
0.237
0.059***
-0.001
-0.004
-0.002
0.007
t-stat
-2.39
2.36
-2.73
0.05
-1.52
0.26
0.98
4.25
-1.14
-0.77
-0.44
1.37
Yes
Yes
Yes
Target country
22,036
0.067
Coeff.
-0.212**
0.019*
-0.098**
-0.007
-0.355
0.074
0.432
0.064***
-0.001
-0.009
0.008
0.020***
t-stat
-2.05
1.69
-2.56
-0.40
-1.53
0.75
1.56
3.83
-0.61
-1.60
1.38
3.21
Yes
Yes
Yes
Target country
22,036
0.067
Coeff.
-0.295***
0.023***
-0.238***
0.023
-0.436*
0.076
0.212
0.071***
0.0001
0.003
0.007
0.005
t-stat
-4.36
4.12
-10.03
1.50
-1.80
0.90
0.69
2.58
0.11
0.53
1.23
0.07
Yes
Yes
Yes
Target country
22,036
0.067
Table 8. Experience building vs. memory loss
CAR(-1, +1)
CAR(-2, +2)
CAR(-3,+3)
Short TBD
Long TBD
Short TBD
Long TBD
Short TBD
Long TBD
[1]
[2]
[3]
[4]
[5]
[6]
Independent var.
Coeff.
t-stat
Coeff.
t-stat
Coeff.
t-stat
Coeff.
t-stat
Coeff.
t-stat
Coeff.
t-stat
DONC
0.759
2.46
0.199
0.69
0.692
1.84
0.265
0.77
0.796
1.98
0.057
0.12
DONC²
-0.072
-2.64
-0.035
-1.27
-0.062
-1.84
-0.043
-1.31
-0.077
-2.06
-0.025
-0.60
Acqurier size
-0.121
-2.71
-0.132
-4.43
-0.184
-2.99
-0.181
-4.39
-0.192
-4.06
-0.094
-2.36
Acqurier M/B
Public target
Related M&A
Stock deal
Trend
ΔGDP per capita
ΔGDP growth rate
ΔStock market return
0.040
-0.310
-0.225
0.010
0.024
0.000
-0.008
0.000
1.01
-0.42
-0.90
0.02
0.45
0.05
-0.33
-0.01
-0.025
-0.615
0.339
0.716
0.125
-0.001
0.007
-0.001
-0.95
-1.24
2.23
1.07
0.22
-0.37
0.21
-0.15
0.056
-0.286
-0.170
0.648
-0.012
0.000
-0.031
0.002
1.44
-0.25
-0.63
0.51
-0.25
0.09
-1.21
0.91
0.000
-0.717
-0.060
1.741
0.819
-0.001
0.024
-0.003
-0.01
-1.33
-0.2
2.19
1.14
-0.53
0.70
-0.71
0.065
0.114
-0.242
0.511
0.052
-0.001
0.014
-0.003
1.58
0.09
-0.86
0.45
0.87
-0.27
0.47
-0.97
0.012
-0.555
-0.143
1.545
0.444
-0.0004
0.015
-0.002
0.45
-0.94
-0.43
1.95
0.42
-0.21
0.37
-0.39
ΔCurrency valuation
-0.003
-0.11
-0.033
-1.14
0.040
1.40
-0.038
-1.05
-0.005
-0.15
-0.032
-0.79
Fixed effects
S.E. clustering
Obs.
R²
Target country
1,648
0.064
Target country
1,938
0.067
Acquirer-/target-country, Year
Target country
Target country
1,648
1,938
0.065
0.080
Target country
1,648
0.065
Target country
1,938
0.073
Table 8. Country-specific learning
CAR(-1, +1)
Short TBD
[1]
CAR(-2, +2)
Long TBD
[2]
Short TBD
[3]
CAR(-3,+3)
Long TBD
[4]
Short TBD
[5]
Long TBD
[6]
Independent var.
Coeff.
t-stat
Coeff.
t-stat
Coeff.
t-stat
Coeff.
t-stat
Coeff.
t-stat
Coeff.
t-stat
DON
-0.010
-0.18
0.027
0.64
0.052
0.82
0.016
0.39
0.007
0.10
0.050
1.01
DON²
0.000
-0.06
-0.001
-0.81
-0.001
-0.67
-0.001
-0.50
0.000
-0.08
-0.002
-1.40
Acqurier size
Acqurier M/B
Public target
Related M&A
Stock deal
Trend
ΔGDP per capita
ΔGDP growth rate
ΔStock market returns
ΔCurrency valuation
-0.113
0.037
-0.368
-0.215
-0.031
0.040
0.000
-0.004
0.000
-0.009
-2.76
0.99
-0.51
-0.88
-0.06
0.77
-0.01
-0.17
-0.08
-0.29
-0.143
-0.023
-0.594
0.343
0.737
0.083
-0.001
0.008
-0.001
-0.035
-5.86
-0.87
-1.20
2.18
1.11
0.15
-0.41
0.26
-0.23
-1.26
-0.197
0.056
-0.313
-0.165
0.657
-0.007
0.000
-0.028
0.002
0.035
-2.97
1.49
-0.28
-0.61
0.52
-0.15
0.03
-1.05
0.81
1.20
-0.193
0.002
-0.692
-0.056
1.754
0.770
-0.001
0.025
-0.003
-0.041
-5.07
0.07
-1.28
-0.19
2.19
1.09
-0.56
0.77
-0.79
-1.14
-0.200
0.063
0.070
-0.236
0.508
0.060
-0.001
0.017
-0.003
-0.010
-3.56
1.58
0.06
-0.83
0.46
0.99
-0.31
0.56
-1.01
-0.30
-0.109
0.015
-0.531
-0.134
1.591
0.387
-0.001
0.017
-0.002
-0.035
-2.58
0.58
-0.90
-0.43
2.00
0.38
-0.29
0.42
-0.45
-0.87
Fixed effects
S.E. clustering
Obs.
R²
Target country
1,648
0.06
Target country
1,938
0.066
Acquirer-/target-country, Year
Target country
Target country
1,648
1,938
0.063
0.079
Target country
1,648
0.063
Target country
1,938
0.077
Concluding remarks
Bidders repeat deals in the same country…
• They make deals faster and faster
• They buy larger ownership stake in the target firm
• They use more cash as the payment method
Bidders learn through serial acquisitions in the country.
• Timing of learning matters
We welcome your suggestions!