How Do Mergers Create Value? A Comparison of Taxes, Market Power, and Efficiency Improvements as Explanations for Synergies

Sources of Synergy Realization in Mergers and Acquisitions: Empirical Evidence from Non-Serial Acquirers in Europe

“…This conclusion undoubtedly contrasts with the findings by Devos et al (2009), which likely reflects a difference in motives underlying M&As. Devos et al investigate deals from the fourth M&A wave, while we only consider transactions as of the fifth wave.…”

“…Next, we show that cost-based synergies are larger in cross-border acquisitions. Yet, large acquirers find it more difficult to realize cost-based synergies, which is in line with prior research (e.g., Moeller et al, 2004;Devos et al, 2009). Finally, highly leveraged bidders and UK bidders achieve larger investment-based synergies, with the effects being somewhat stronger for tangible fixed assets than for net working capital.…”

“…Finally, the results provide some indication that the abnormal changes in net working capital as well as in tangible fixed assets are smaller when the acquirer is headquartered in the UK. So, in line with Devos et al (2009), companies in an Anglo-Saxon context are able to achieve larger investment-based synergies.…”

“…Operating synergies can also stem from cutbacks in investments, resulting in a more efficient use of capital equipment (e.g., Gaughan, 2002;Devos et al, 2009). When two firms combine, they can indeed improve the efficiency of their investments by sharing particular assets, like an office building, a factory, or machinery.…”

“…Besides, and somewhat related to this issue of control, cash deals are far more prevalent in Europe, which also mitigates the role of stock market misvaluation as a driver of external growth decisions. As a result, the nature and magnitude of synergies in European acquisitions could be different from a US sample (e.g., Devos et al, 2009).…”