Target’s financial performance in corporate acquisitions: BRICS evidence

Abstract

Corporate acquisition success can be influenced by many factors, e. g. financial performance of acquirer or target firm, market reaction, rumors, contract clauses etc., having either negative or positive effects. The aim of this study is to investigate the role of target’s financial performance in acquisition process and its influence on acquisition success. Research scope of the study is narrowed to BRICS companies, where lack of experience and intensively growing economies led to a growth in M&A deals number. The study uses the accounting-based approach that implies calculation of combined ROA change to measure acquisition performance and answer the posed research question. Based on 70 acquisition deals data collected from Bureau van Zephyr, Refinitiv Eikon and SPARK, the research relies on building logistic and OLS regressions in order to observe long-term effects of various parameters influencing acquisition success. The results of this study suggest that acquisitions affect combined financial performance of the companies negatively, on average, but they are more successful if the target company was making losses prior the deal than if the target had sufficient financial health. In addition, we revealed that cross-border and crossindustry factors positively influence the performance of the deals. The paper contributes to the literature as it focuses on both the fact of the acquisition success or failure and its numerical expression, therefore it helps to investigate the impact of variables on the result. In addition, it highlights the reasons why the acquirers in BRICS quite often make deals with loss-making targets.

Keywords:

corporate acquisitions, acquisition performance, target’s financial performance, bidder’s motivation, BRICS countries