Cross-border Acquisition Performance of US Companies in Ireland: Short- and long-term Performance

This paper evaluates the effects of cross-border mergers and acquisitions (M&A) on shareholder value creation of US companies following transactions in Ireland. To determine the effect of cross-border M&A and the relative... [ view full abstract ]

This paper evaluates the effects of cross-border mergers and acquisitions (M&A) on shareholder value creation of US companies following transactions in Ireland. To determine the effect of cross-border M&A and the relative influence of the underlying M&A motives, the short-term acquisition performance is examined following an event study methodology based on stock market returns. At the same time, the effects on operational performance are measured in the long-term using accounting-based performance measures and an industry benchmark model.

The results indicate that the shareholder value creation is positive but insignificant measured as stock market returns. Further analysis shows that the stock market re-turns are positively impacted by synergistic motives. In contrast, the diversification of product lines and markets has proven to influence the shareholder value negatively. The analyses reveal that the size of the acquirer tends to impact the acquisition performance negatively. In contrast, profitable acquirers show significantly higher stock market returns after the M&A announcements than acquirers with relatively low pre-deal profitability. In regard to the long-term shareholder value creation, the operational performance tends to decline in the years following cross-border M&A. The predominant influencer of the value deterioration in the long-term is the aim to expand geographically. Hence, M&A transactions with diversification objectives are shown to generate relative weak acquisition performances. Transactions that aim to strengthen the existing operations do induce positive stock market reactions, but they are not likely to create a sustainable shareholder value for the acquirer.