Assessment of the Performance of Mergers: Revisiting Results after a Prolonged Period

Abstract

Research background: Mergers and acquisitions (M&As) have become a widespread tool for business growth strategy. Considering the developments after the previous financial crisis, a fresh wave of M&As is expected to appear in the near future. Investors will look for suitable businesses to consolidate their market position. Purpose of the article: The aim of this work is to assess the performance of completed mergers over a period of five years and compare the results with previous research in which we examined the success of mergers over a threeyear period. Our goal was to find out if any differences in performance indicators occur and if these differences are significant. The results may offer potential indicators of merger success rate prediction. Methods: We focused our research on mergers of private companies (i.e. not publicly traded companies) in the Czech Republic. Our research sample contained 50 completed mergers. The mergers were divided into two groups – successful and unsuccessful – according to the sales and profit of the merged company. We calculated financial indicators for each group based on accounting data. We then used the Mann-Whitney U test to test the significance of the differences between the indicator values. Findings & value added: Several important performance indicators emerged. The most significant included production consumption to sales, the material cost to sales, receivables to sales, assets turnover and profitability ratios. The ratio labour cost to sales was replaced with the ratio value added to labour cost. Our research concludes that these indicators can be considered crucial.Research background: Mergers and acquisitions (M&As) have become a widespread tool for business growth strategy. Considering the developments after the previous financial crisis, a fresh wave of M&As is expected to appear in the near future. Investors will look for suitable businesses to consolidate their market position. Purpose of the article: The aim of this work is to assess the performance of completed mergers over a period of five years and compare the results with previous research in which we examined the success of mergers over a threeyear period. Our goal was to find out if any differences in performance indicators occur and if these differences are significant. The results may offer potential indicators of merger success rate prediction. Methods: We focused our research on mergers of private companies (i.e. not publicly traded companies) in the Czech Republic. Our research sample contained 50 completed mergers. The mergers were divided into two groups – successful and unsuccessful – according to the sales and profit of the merged company. We calculated financial indicators for each group based on accounting data. We then used the Mann-Whitney U test to test the significance of the differences between the indicator values. Findings & value added: Several important performance indicators emerged. The most significant included production consumption to sales, the material cost to sales, receivables to sales, assets turnover and profitability ratios. The ratio labour cost to sales was replaced with the ratio value added to labour cost. Our research concludes that these indicators can be considered crucial.