Theory and evidence on mergers and acquisitions by small and medium enterprises

Abstract

Abstract:The theory of mergers and acquisitions (M&As) has been developed almost exclusively from the study of large deals by large firms. In this paper we argue that the behaviour and success of M&As by small and medium sized enterprises (SMEs) may be significantly different. Accordingly, we revisit established M&A theories, and develop a theoretical framework, and several testable hypotheses, regarding the distinctive features of SME M&As. Our empirical results support our expectations and show that, compared to large firms, acquiring SMEs: rely more intensively on external growth via M&As; are more likely to be withdrawn, suggesting that SMEs are more flexible, and more able to avoid deals that turn sour; and, finally, SME M&As are more likely to be financed with equity rather than debt, indicating that the influential financial pecking order theory is of less relevance to SMEs.

Untangling micro-behavioral sources of failure in mergers and acquisitions: a theoretical integration and extension

“…'platform' vs. 'bolt-on' acquisitions) may provide a thorough understanding with nuances specific to particular contexts and settings (see Brueller, Carmeli, & Drori, 2014). Further, research suggests that M&A deals in small-and medium-sized firms are different from those of large firms (Weitzel & McCarthy, 2011) because they possess differential level of resources, pursue different strategic orientations as they cope with unique challenges and their ownership takes different forms (Johnson, 2007). Our theorizing points to communication climate as essential for M&A deals in smaller and larger organizations, but we also recognize that in M&As between large firms may require even further engagement in communication to manage the complexity of exchanging and integrating knowledge across many work units.…”

High-growth firms and innovation: an empirical analysis for Spanish firms

“…In a sample of high-growth firms, Davidsson et al (2006) find that young and small firms tend to grow organically, while large and old firms tend to grow by acquisition and merges. Howeover, for Weitzel and McCarthy (2011) merges and acquisitions are a more popular growth strategy for European SMEs, and even more so than for large firms. ic grow However, the intrinsic risks of innovative activity may prevent firm growth in some cases and promote it in others.…”

Do Mergers and Acquisitions Affect the Performance of Acquiring Firms? Evidence for Swiss Small- and Medium-Sized Firms

“…The latter explains the performance failure of mergers through the existence of informational and agency problems between management and owners (see, e.g., ). For SMEs we expect that the value-destroying approach will not apply because in most cases there is no separation of ownership and control (Weitzel and McCarthy 2011). In this study we thus concentrate on the value-increasing efficientmarket approach.…”

“…Weitzel and McCarthy (2011) suggest that SMEs are different from their larger rivals for at least two reasons. Firstly, because as already mentioned above agency problems that occur with the separation of ownership and control arise much less in SMEs.…”

“…This neglect of M&A studies that refer to SMEs may be traced back to the fact that the majority of empirical studies rely on stock market-based measures of performance (see, e.g., King et al 2004;and Meglio and Risberg 2011). As such information is not available for the majority of SMEs, the performance of M&As is almost exclusively analyzed for large M&As and it is unclear whether the implications of these studies are valid also for M&As of SMEs (see Weitzel and McCarthy 2011).…”