How to identify targets in the M&A banking operations? Case of cross-border strategies in Europe by line of activity

Abstract

During the last decades, the European banking system has known some deep changes. They have led to mergers and acquisitions (M&As). The available studies show that the failure rate of theses M&As is relatively high. Cross-border operations are more exposed to this risk. The high failure rate is due to the cultural and contextual differences between the M&A participants, differences which make the process of integration particularly difficult. Thus, the success of M&As depends on the choice of adequate M&A targets. This choice constitutes the main challenge for company leadership. The aim of this paper is therefore to determine the factors which permit to identify the M&A targets. Our contribution compared to that of previous research is that we study M&As and the identification of targets by line of bank activities. On the basis of a sample made up of 1071 European banks, between 2000 and 2006, we use a Logit Multinomial Model. Our main results show that the target banks tend to be specialized in investment and market activities while the acquiring banks tend to approach themselves to the universal bank model.

Cross-Border Bank Mergers and Acquisitions: What Factors Pull and Push Banks Together?

“…Firms can raise their economic profit by increasing their market power in setting prices on the goods and services they provide. Under this market power hypothesis (Lanine and Vennet, 2007), firms tend to target foreign banks that possess large market shares in their home countries (also see Slama et al, 2012).…”