Sources of value creation and destruction in horizontal mergers and acquisitions

Abstract

Purpose The purpose of this paper is to investigate the determiners to create and destroy value in horizontal mergers and acquisitions (M&A) using accounting indicators supposed to influence the new entity’s value. Design/methodology/approach Using a sample of 90 French listed companies and stepwise regression method, the authors test eight accounting indicators supposed to influence the new entity’s value. Findings To create value after a horizontal M&A, it is necessary to concentrate on turnover and the restructuring of charges without neglecting the control of debt capacity. To avoid destroying value after a horizontal M&A, it is necessary to concentrate on the control of debt capacity and restructuring of charges in order to reduce financial charges and financial risk. Horizontal M&A also create value through the reduction of investment costs and through tax optimization. Research limitations/implications This paper is different from other contributions in that the majority of existing literature concerning the sources of value creation in M&A has been based on abnormal returns or microeconomic data. This paper analyzes accounting data that are likely to be influenced over the long term by corporate decision making. These kinds of decisions influence the firm’s value as well as the long-term gains that industrial investors may hope to obtain. Originality/value This study makes a significant contribution to the existing literature insofar as it seeks to divide the sources of value creation into three categories: sales synergy, cost synergies and hybrid synergies. To the best of the authors’ knowledge, this is also the first study to provide explanations from companies’ accounting data, which can lead managers to a greater vision of post-merger strategy management, reinforcing the mechanism for value creation.