Investigating the Impact of Merger & Acquisition on Post Merger Financial Performance (Relative & Absolute) of Companies (Evidence from Non-Financial Sector of Pakistan)

Abstract

This paper aims to study the impact of merger & acquisition activity on post merger financial performance (absolute & relative) of companies engaged in the non-financial sector of Pakistan. There are total 16 companies selected which were engaged in the merger & acquisition during the period

The Effect of Acquisition on Income Statement Items in Acquired Company (Subsidiary Company) - Case Study

“…5;2018 "acquisition". Merger is defined as an activity in which a company is merged into a company or two or more companies to form a completely new entity through the loss of their separate legal entities in a process known as called "Consolidation" (Ashfaq et al, 2014). In the case of an acquisition, it is a takeover of equity in another entity while the acquired entity preserves it independent legal entity.…”

“…In the case of an acquisition, it is a takeover of equity in another entity while the acquired entity preserves it independent legal entity. The acquirer company is known as the "parent company" and the acquired company is known as "the subsidiary company" (Ashfaq et al, 2014). Acquisition is the easiest and least risky form of investment, being easier and quicker than other ways of investment.…”

“…This trend has moved to other countries where competition among small and large companies worldwide has increased as a result of globalization. Acquisition is considered nowadays as one of the most important activities in the business world, often adopted by organizations to achieve objectives such as market competition, growth and preservation (Ashfaq et al, 2014). The acquisition is a company's takeover of another targeted company, which is lower in its financial, administrative viability (or both) than the holding company, by purchasing a proportion of its shares for controlling it (Alhayek, 2015).…”

“…In practice, acquisition may be a hostile or friendly act. In a Friendly Takeover, the company's representatives negotiate with the shareholders of the acquired company over the purchase price, but in the case of the Hostile Takeover the shares of the targeted company are purchased without the approval of its management (Dahir, 2015), and acquired companies are classified as local or cross-border based on the region and nationality of the companies from different countries or economies (Ashfaq et al, 2014). The global economy has recently witnessed many voluntary businesses between strong companies to drive growth and revenues (Festus & Richard, 2015).…”

“…Acquisition is one of business growth and expansion methods in order to increase the company's investments and activities and maximizing shareholders' wealth (Bryant, 2016), and to achieve financial, operational and strategic synergy (Ashfaq et al, 2014), to increase products, Rationalization of distribution channels and cost savings (Fasua & Osagie, 2016). The growth has a positive relationship with profits because growth boosts profits and profits generating companies grow more and are able to survive in their markets (Kwenda et al, 2017).…”