Collection of Essays on Mergers & Acquisitions
Thesis or dissertation
University of Exeter
This PhD thesis consists of three essays which are interlinked by two themes – the problem of risk and information asymmetry in cross-border mergers and acquisitions carried out by UK investors. Majority of empirical research in finance, and in particular in mergers and acquisitions focuses on the US outward investments. However, UK investors are the second most active when it comes to international acquisitions. The country’s physical proximity to continental Europe and common legal system make UK transactions a particularly interesting dataset. In the first essay we try to understand how UK investors decide in which country to invest. We investigate in which cases increased level of risk and higher information asymmetry are desired by UK investors and find that higher corporate governance standards, more stringent accounting standards and strong creditor and shareholder protection deter investors. Legal system seems to be of no statistical significance indicating that the law of the host country does not fully reflect the level of such standards, while lack of significance of media coverage indicates that investors are not concerned about the public scrutiny. The second paper looks at how increased risk and information asymmetry impact the likelihood of using a contingent payout agreement and if investors always will use this method to reduce the risk of overpaying for the target. The evidence shows that deal- specific features reflecting higher asymmetry of information and risk increase the chances of using an earnout contract. However, cross-border transactions do not involve earnout contracts more often than the domestic ones which is most likely due to potential enforcement issues resulting from different legal systems. The last chapter of this thesis looks at the ways in which the acquirer can structure the transaction to reduce the risk that the offer will be rejected. Our results stress the importance of bilateral negotiations. Although the size of the premium is significant, its importance is fairly negligible when compared with the impact of hostile transactions, competing bids and the inclusions of a termination fee. From the above we can infer that carefully planned bilateral negotiations leading to a high premium would maximise the chances of deal completion. Recapitulating, in this collection of essays we try to answer the questions of how risk and information asymmetry influence UK investors‘ decision where to invest, how to pay for the target and whom and how to acquire in order to maximise the chances that the transaction will be successfully finalised.
PhD in Finance