Today, companies need to constantly expand their business to stay ahead of the severe competition. As competition grows more intense, it makes sense to join forces or simply acquire the rival to provide the most diverse service and to reach even the last customer.
But is it really only about the need for efficiency to merge and acquire competitors? Are managers and investors right about their hope, that every new acquisition or merger offers more control over the market? Or are they themselves pushed into these promising expectations?
This research focuses on how social behavior influences value creation in mergers and acquisitions. Throughout history, waves have been observed that reflect the excessive hype for perennial need of growth. Growth by acquisitions and mergers is seen as key element to create value by investors and managers.
However, reality looks different. This research focuses on a two step approach by first describing underlying social catalysts that amplify the trend towards value creation in mergers and acquisitions. Secondly, to verify the investigation of social behavior, the results are matched to a financial approach to detect whether the transaction price justifies the current value and possible synergies or whether value is destroyed.
A case study was conducted of Boss Media AB, a software company situated in the online gaming industry, which experienced several mergers and acquisitions since their foundations and was eventually acquired itself. The company provided an interview and further information on their involvement with mergers and acquisitions.
The research showed that mergers and acquisitions continue to increase in number and value, leading to the amplitude of each wave being higher than the previous one. This also means that more value is destroyed. It is illustrated that managers being determined to have bet on the right horse, are often more influenced by social behavior and trends than they think they are.
Blinded by the overestimation of their own abilities, and prosperous short- term profits, managers overvalue their investment choices. Hence, the research implies that managers destroy shareholder value even though they initially intended to create it.
Source: Linnaeus University
Authors: Bischoff, Anna Lena | Sällström, Linn | Alexander Danylow, Jesco