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Finance Series: corporate-finance

Learning From Your Investors - Shareholder support in M&A transactions

This research looks at the assistance long-term institutional shareholders could offer corporates in acquiring knowledge of potential M&A targets, particularly those abroad.

Author(s): Professor Scott Moeller - Cass Business School; Dr Valeriya Vitkova - Cass Business School; Maria Carapeto - Cass Business School; Miles Gietzmann - Cass Business School; Anna Faelten - Cass Business School

With companies increasingly looking at potential acquisitions abroad, the need to acquire specialised knowledge about the target, the target's environment and the merits that may result from a M&A deal is becoming ever more important. This research looks at the assistance long-term institutional shareholders could offer corporates in achieving their aims. These so-called 'monitoring investors' may possess expertise on certain geographical regions owing to the fact that they manage portfolios that require the development and application of such sophisticated knowledge. They are driven by profit-maximising objectives and are motivated to closely monitor the actions of management. They may also be better positioned to gather, analyse and communicate the desired information.

It may be possible that company shareholders whose investment portfolios are primarily exposed to a particular geographical area possess information on the opportunities for efficacious investment in the region. In this context, our research asks if it's possible that the support of investors with regional expertise can indicate the likely long-term benefits of a cross-border acquisition? If so, can management improve their decision making regarding cross-border M&A on the basis of 'input' provided by institutional investors?

Report highlights:

  • Regression analysis shows that post-merger acquirer returns are positively related to the support of dedicated investors who possess specialised expertise about the target region of domicile;
  • The results serve as evidence that monitoring investors with regional expertise can provide valuable input on the impact which certain region specific factors can exert on the financial rewards from M&A deals;
  • The findings of this study imply that there can be situations in which the process of project selection and execution may be improved by encouraging a dialogue between management and knowledgeable long-term investors.

The M&A Research Centre (MARC) at Cass Business School collaborated with its senior sponsors, Credit Suisse and Ernst & Young, in producing this research.

The full report (dated July 2011) can be downloaded at the MARC section of the Cass Business School website. A short registration form must be completed.

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