scholarly journals Empirical research on mergers’ leverage dynamics and post-merger integration duration

2019 ◽  
Vol 45 (10/11) ◽  
pp. 1488-1507
Author(s):  
Yao Cheng
Keyword(s):  
Capital Structure ◽  
Integration Process ◽  
Content Type ◽  
Acquiring Firms ◽  
Integration Period ◽  
Target Firms ◽  
Empirical Tests ◽  
Post Merger Integration ◽  
Merger Integration ◽  
Leverage Dynamics

Purpose The purpose of this paper is to examine the effects of the post-merger integration duration on acquiring firms’ leverage behavior before and after a merger, using a dynamic model in which full merger benefits cannot be consumed at the instant of a merger, but rather after a pre-specified post-merger integration period. Design/methodology/approach This paper presents a dynamic model and empirical tests that describe the impact of the post-merger integration period on the capital structure dynamics of the acquiring and target firms prior to a merger and during the post-merger integration period. By incorporating costs associated with the post-merger integration period, the model can provide new implications for the leverage behavior around the merger. Findings Empirical tests support the model implications by showing that the longer the expected post-merger integration process, the less likely the acquirer will structure the financing of the combined firm in a manner that increases firm leverage. Since integration takes time to complete, an acquirer tends to retain financial flexibility during the integration process by assuming lower levels of debt when determining the capital structure of the merged entity. Originality/value The model generates new implications related to acquiring firms’ leverage dynamics along with the method of payment choice. The analysis of the duration of the post-merger integration period extends both the theoretical and empirical literature that tacitly assumes that the merger-related synergy is realized immediately at the merger date. This is the first model in the literature that assumes that both the acquiring and the target firms can change their capital structure overtime, which allows us to analyze both the financing structure and the merger timing. Previous empirical studies also ignore the integration period in the analysis of the method of payment choice and leverage behavior around mergers. The model in this paper can be extended along a number of dimensions.

Integration duration of post-merger and leverage dynamics of mergers: theory and evidence

2019 ◽  
Vol 31 (2) ◽  
pp. 208-231
Author(s):  
Yao Cheng
Keyword(s):  
Capital Structure ◽  
Dynamic Model ◽  
Content Type ◽  
Acquiring Firms ◽  
Integration Period ◽  
Target Firms ◽  
Method Of Payment ◽  
Post Merger Integration ◽  
Merger Integration ◽  
Leverage Dynamics

Purpose The purpose of this paper is to examine the effects of the post-merger integration duration on acquiring firms’ leverage behavior before and after a merger, using a dynamic model in which full merger benefits cannot be consumed at the instant of a merger, but rather after a pre-specified post-merger integration period. Design/methodology/approach This paper presents a dynamic model and empirical tests that describe the impact of the post-merger integration period on the capital structure dynamics of the acquiring and target firms before a merger and during the post-merger integration period. By incorporating costs associated with the post-merger integration period, the model can provide new implications for the leverage behavior around the merger. Findings The model generates new implications related to acquiring firms’ leverage dynamics along with method of payment choice. Specifically, the model indicates that the post-merger integration duration is negatively associated with the market leverage of newly-merged firms at the time of merger completion and during the integration period. Further, acquirer managers are more likely to use equity to finance a merger when the integration duration is likely to be lengthy. Originality/value This is the first model in the literature that assumes that both the acquiring and the target firms can change their capital structure overtime, which allows us to analyze both the financing structure and the merger timing. Previous empirical studies also ignore the integration period in the analysis of the method of payment choice and leverage behavior around mergers. In the tests reported in this paper, the authors control for the factors mentioned above and demonstrate that the expected integration duration is not subsumed by those variables implying that it has its own power in explaining the choice of leverage and merger financing method.

Can Post-Merger Integration Costs and Synergy Delays Explain Leverage Dynamics of Mergers?

2019 ◽  
Vol 09 (04) ◽  
pp. 1950012
Author(s):  
Sergey Tsyplakov
Keyword(s):  
Capital Structure ◽  
Empirical Evidence ◽  
Integration Process ◽  
Target Firm ◽  
Acquiring Firms ◽  
Integration Period ◽  
Post Merger Integration ◽  
Financing Behavior ◽  
Merger Integration ◽  
Leverage Dynamics

The integration of two merging firms takes time to complete, and synergy gains from a merger can be captured only after the firms go through a costly and often lengthy post-merger integration period. This paper presents a dynamic model of capital structure for the target firm and the acquirer to examine the effects of the integration period on acquiring firms’ financing behavior around mergers. The model generates predictions that provide rational (non-behavioral) explanations for documented empirical evidence regarding leverage dynamics around mergers. When anticipating a longer and costlier integration period, acquiring firms strategically plan ahead by choosing a lower leverage prior to and at the time of the merger, and gradually lever up as the post-merger integration process nears completion. Deals with longer integration periods are financed with a larger fraction of equity. The model also implies that acquiring firms optimally time takeovers of underleveraged firms that experience negative shocks to their earnings.

Debt seniority and mergers

2015 ◽  
Vol 41 (6) ◽  
pp. 550-562 ◽  
Author(s):  
Ronald Sverdlove
Keyword(s):  
Capital Structure ◽  
Design Methodology ◽  
Corporate Policy ◽  
Content Type ◽  
Acquiring Firms ◽  
Target Firms ◽  
Detailed Level ◽  
Practical Implications

Purpose – The purpose of this paper is to show how corporate policy with respect to the seniority structure of debt changes after a merger. Design/methodology/approach – The author uses data on the seniority and other properties of outstanding bonds of acquiring and target firms before mergers and of the combined firm after the merger. The author tests whether a combined firm that has acquired junior debt in the merger attempts to move toward the senior-only structure of the acquiring firm before the merger. Findings – The author finds that acquiring firms do not rapidly move back toward that structure after acquiring senior debt. Research limitations/implications – The results of this study are consistent with those of many recent studies on capital structure, which find that changes in capital structure tend to persist, and that firms are slow to revert to previous structures aftershocks, such as those that may result from mergers. Practical implications – The paper suggests that there may be an advantage for firms to sell off acquired junior debt after a merger. Originality/value – This paper extends previous studies of capital structure to the more detailed level of debt seniority structure.

How post-merger integration duration affects merger outcomes

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Joon-Hee Oh ◽  
Wesley J. Johnston
Keyword(s):  
Experimental Research ◽  
Organizational Support ◽  
Cost Effective ◽  
Integration Process ◽  
Content Type ◽  
Effective Expansion ◽  
New Finding ◽  
Cost Efficient ◽  
Post Merger Integration ◽  
Merger Integration

Purpose This study aims to confirm earlier findings that differences between merger and acquisition (M&A) participant firms are a hurdle for successful mergers and shows that merger outcomes can also be affected by the post-merger integration duration (PMID). Design/methodology/approach Experimental research on distinct cultures developed within experimental pre-merger subject groups is used to compare pre- and post-integration performances. Findings This study finds that firm distance (i.e. inherent differences between pre-merger firms) negatively influences merger success; no significant relationship between firm distance and PMID exists and PMID is positively related to merger success. Specifically, a slower integration minimizes conflicts between merger partners, enhances trust-building and reduces the disruption of existing resources and processes in both firms, which may benefit M&As. By contrast, a fast integration that shortens the overall integration process may discourage the combined entity from recognizing the intended synergy quickly. Research limitations/implications The new finding that PMID can affect merger outcomes invites empirical validation. This study presents experimental evidence that prolonged, well-structured post-merger integration may compensate for the negative time-variant issues associated with PMID. Practical implications Organizational support for collaborative learning between professional members should be a strategic consideration for firms so that acquiring business capabilities can be more natural and cost-efficient than building internal capabilities despite possibly slowing down the integration process. Encouraging a transfer of technical and client knowledge between the combined members can create value and understand differences in both the form and content of each firm’s knowledge base and the pre-existing mechanisms for sharing knowledge. It may lower the level of resistance in knowledge transfer. Originality/value While M&As may better facilitate the cost-effective expansion of business offerings than building capabilities internally, they can require considerable time, preventing many firms from realizing their intended outcomes. Nevertheless, less attention has been focused on PMID and its influence on M&As. This study is the first to use experimental research to examine the effects of PMID on merger success.

Marriage for better or for worse? Towards an analytical framework to manage post-merger integration process

2015 ◽  
Vol 21 (4) ◽  
pp. 857-887 ◽  
Author(s):  
Aihie Osarenkhoe ◽  
Akmal Hyder
Keyword(s):  
Growth Strategy ◽  
Three Dimensions ◽  
Integrative Model ◽  
Integration Process ◽  
Entry Modes ◽  
Dyadic Relationship ◽  
Content Type ◽  
Research Traditions ◽  
Post Merger Integration ◽  
Merger Integration

Purpose – A review of extant literatures shows that most mergers fail during the integration process. Little is known about how the realization of operating synergies and dissemination of available know-how in the merged firm are managed in the post-merger phase. The purpose of this paper is to provide insights on the process of integrating operating synergies by focusing on the critical success factors that facilitate integration of the skills of merged banks. Design/methodology/approach – The authors draw on three research traditions in merger literature and reconcile them with three dimensions of integration. In-depth interviews were conducted with Nordea managers from four Nordic countries. Findings – Having learned from the mistakes of previous mergers, Nordea’s “guiding star” for managing its post-merger integration process was expressed as focus, speed and performance from top management. A hands-on leadership style, vision-led thinking, a bias for action, involvement of the entire staff, continuous focus on customers, open and honest communication with employees are critical to success. Practical implications – The motive for a merger has an important impact on the degree of interaction and degree of integration. The authors expand on previous findings by, among other things, synthesizing three theoretical lenses into an integrative model, and addresses post-merger issues with a sharp eye towards clear managerial relevance. Originality/value – The authors respond to the call to expand inter-firm relationships study beyond the narrow dyadic relationship focus and not solely conceptualize mergers as one of companies’ entry modes to implement mechanistic growth strategy. The three dimensions of integration imbued with three research traditions in merger literature provides us with a conceptual lens to conceive mergers also as engines for change emerging from the merged firms to enhance a bespoke performance of their business process.

Five essentials for successful merger integration: what the aerospace and defense industry knows

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jeffrey M. Voth
Keyword(s):  
Large Scale ◽  
Current Knowledge ◽  
Primary Data ◽  
Integration Process ◽  
Content Type ◽  
Primary Data Analysis ◽  
Post Merger Integration ◽  
Merger Integration ◽  
Aerospace And Defense

Purpose This paper aims to offer an original analysis of how three of the largest aerospace and defense (A&D) companies equipped their organizations for merger integration success. Design/methodology/approach Through a multi-case study, this paper explores the post-merger integration process for large-scale transactions completed over a 25-year period. Semi-structured interviews were conducted with industry executives and leading management consultants. The process involved collection of primary data, analysis of secondary data drawn from publicly available company documents and identification of key factors that led to success. Findings Five interdependent success factors (Figure 1) support integration teams and capture deal value. Managing the process as a megaproject further facilitates the effectiveness of post-merger integration, enabling leaders to remain laser-focused on integration activity while driving toward a long-term vision for the newly formed organization. Practical implications Merger integration has been identified as a primary source of deficiency that prevents acquirers from achieving anticipated results, negatively affecting merger success. Based on the findings of this paper, firms are more likely to create a compelling long-term value creation agenda when five essential factors are combined with a megaproject approach to manage the post-merger integration process. Originality/value This study advances current knowledge in the field by responding to requests to further explore the dimensions of merger integration that facilitate success and improve shareholder value, contributing new data to inform extant theories regarding merger integration and megaproject management and adding to the limited research on post-merger integration within the A&D industry.

Corporate social responsibility as a legitimation strategy in a merger

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Anne-Sophie Thelisson ◽  
Olivier Meier
Keyword(s):  
Corporate Social Responsibility ◽  
Specific Role ◽  
Integration Process ◽  
Content Type ◽  
Brand Culture ◽  
Post Merger Integration ◽  
Key Steps ◽  
Corporate Social ◽  
Merger Integration

PurposeThe objective of the study is to explore legitimation dynamics in a public–private integration process and to gain insights on the specific role of CSR in triggering public–private logics.Design/methodology/approachCorporate social responsibility (CSR) is part of firms' strategy in gaining legitimacy from their stakeholders in a merger context. However, little is known about the role of CSR in triggering diverse dynamics from public or private logics during post-merger integration. This study aims at exploring the specific role of CSR in triggering such diverse logics. A qualitative research design based on a single case study of a public–private merger of two French listed companies in the urban planning sector was opted for. The analysis was pursued in real time from the signing of the agreement and then over two years.FindingsThe results show that public–private legitimation is a process that proceeds in stages. The authors emphasize the key factors that characterize it: align on external concerns: reflecting societal and institutional pressures (public legitimation); readapt to make sense internally in relation to the merger through managerial innovation (private legitimation) and CSR as a form of corporate self-storying: combining the social and societal aspects of CSR within the organization (hybrid legitimation). Three major actions were identified in activating a CSR legitimation strategy: identifying and responding to local needs; building a unified brand, culture, and employee commitment to the organization; and creating sustainable programs.Research limitations/implicationsThe first major contribution is linked to triggers influencing legitimation dynamics and in particular the role of CSR operating as a legitimation strategy in the merger integration process. A second theoretical contribution is linked to the evolutionary nature of the post-merger integration process. The processual study shows how stakeholder legitimacy demands can escalate and change over time.Practical implicationsFirst, three major actions were identified as key steps in activating a CSR legitimation strategy (identifying and responding to local needs; building a unified brand, culture, and employee commitment to the organization; and creating sustainable programs). These missions can be understood as key steps for managers in implementing CSR within an organization in a post-merger integration context. Second, this study increases our comprehension of legitimation as a dynamic micro-process. The different stages described in the study can be considered by the managers involved in the merger process as learning experiences to understand the complex phenomenon that is the integration process.Originality/valueThis study enriches the legitimacy-as-process perspective in providing insights on the specific role of CSR in triggering public–private logics.

Reaching organizational ambidexterity in the merger process: a temporal switching

2019 ◽  
Vol 58 (5) ◽  
pp. 879-896
Author(s):  
Anne-Sophie Thelisson ◽  
Audrey Missonier ◽  
Gilles Guieu
Keyword(s):  
Participant Observation ◽  
Organizational Ambidexterity ◽  
Longitudinal Case Study ◽  
Exploration And Exploitation ◽  
Content Type ◽  
Merger Process ◽  
Post Merger Integration ◽  
And Control ◽  
Merger Integration ◽  
Parent Companies

Purpose The purpose of this paper is to explore how a company reaches organizational ambidexterity during a merger process. Organizational ambidexterity refers to the proactive adaptations of an organization to simultaneously explore and exploit. Design/methodology/approach The paper presents a longitudinal case study of a public-private merger of two listed French companies. The data were collected from participant observation, interviews and archival documentation over two years. Findings The balance between autonomy and control by the parent companies evolves during the post-merger integration. The findings reveal that there was no concordance between the oscillations between autonomy and control on the part of the parent companies and the new organization’s exploration/exploitation strategies. However, the progressive evolution of control and autonomy from the parent companies engendered organizational ambidexterity during the third phase integration. Practical implications The study adds insight into how organizations can develop ways to manage organizational ambidexterity dynamics by employing temporal mechanisms, referring to an organization’s shifting sequentially between exploration and exploitation. The case highlights how temporal switching between exploration and exploitation occurs to ultimately enable ambidexterity. Originality/value Although organizational ambidexterity is recognized as a key element for post-merger integration, how it is achieved over the course of the merger process has received little attention. The study highlights that in the case of public-private mergers, the parent companies influence exploration and/or exploitation strategies. The paper adds insights on whether exploration and exploitation can be differentiated over time and whether exploration and exploitation can be reconciled at the same time.

A paradoxical approach symbiotic to postmerger integration: a French longitudinal case study

2019 ◽  
Vol 31 (2) ◽  
pp. 232-259
Author(s):  
Anne-Sophie Thelisson ◽  
Audrey Missonier ◽  
Gilles Guieu ◽  
Lotte S. Luscher
Keyword(s):  
Process Model ◽  
Dynamic Decision Making ◽  
Longitudinal Case Study ◽  
Target Firm ◽  
Content Type ◽  
Organizational Autonomy ◽  
Merger Process ◽  
Inclusive Approach ◽  
Post Merger Integration ◽  
Merger Integration

Purpose This paper aims to examine post-merger integration (PMI) through the lens of paradox to determine how paradoxes contribute to successful integration. Although PMI has been identified as crucial to understand merger success or failure, the literature on PMI drivers remains inconclusive. Design/methodology/approach Drawing on the theory of paradox and two key elements of PMI, strategic interdependency (SI) and organizational autonomy (OA), the authors describe the merger of two listed French companies using longitudinal data. Findings The authors identify how the paradox between OA and SI was triggered and fostered PMI success by leading to symbiotic integration. They also show that two capabilities were central in helping the paradox to evolve: preserving the specificities of the organizations and pooling their respective capabilities. These capabilities result from basic decisions and actions during the integration implementation, such as highlighting the expertise of the target firm, refocusing the core activity while valorizing each company’s expertise, clarifying the identity of the new organization on the market and enhancing joint piloting and transferring both general management capacity and functional abilities during the reorganization period. Practical implications The authors offer several useful insights for managers trying to manage paradoxical tension throughout the merger process. This study encourages managers to embrace inconsistencies as they make decisions and to shift to dynamic decision-making as a way to adapt to complex contexts. Originality/value This study adopts a global and inclusive approach to focus on OA and SI and flesh out a picture of the integration process. It proposes a dynamic process model to conceptualize the stage-wise nature of the PMI process by highlighting the interrelations between OA and SI dynamics.

Segmentally aware: know when to merge and when to purge

2019 ◽  
Vol 33 (1) ◽  
pp. 196-214
Author(s):  
Yao Ma ◽  
Jiahua Xu
Keyword(s):  
Mergers And Acquisitions ◽  
Financial Performance ◽  
Design Methodology ◽  
Content Type ◽  
Structural Integration ◽  
Target Company ◽  
Overall Performance ◽  
Post Merger Integration ◽  
Merger Integration ◽  
Integration Levels

Purpose The purpose of this paper is to hone in on the degree of segment-level integration relative to corporate post-merger performance. Design/methodology/approach The sample consists of 89 segments in 29 combined companies resulting from large mergers and acquisitions (M&A) transactions between 2001 and 2014 in the pharmaceutical and chemical industries worldwide. The authors track the change through M&A in performance of segments with different integration forms as well as performance of entire companies with different integration levels. Findings The authors find that integrating the segments from the target significantly improves the acquirer’s overall performance, as well as the concerned segments’ performance, following an M&A transaction. Whereas the segments from the target company, when left unintegrated, not only exhibit subpar performance among all the segments, but also appear responsible for the worsening corporate performance. Various possible reasons for this contrast are discussed. Originality/value This paper raises awareness of the significance of segment-level analyses, and contributes to the post-merger integration (PMI) research by examining the influence of structural integration on operating segments. To the best of our knowledge, this paper is the first to investigate integration forms and the post-merger financial performance of various segments within companies.

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