Mergers and Acquisitions in the Machinery Industry

146 Pages·2010·0.59 MB·English

by  Florian Geiger

Florian Geiger
Mergers & Acquisitions in the Machinery Industry
GABLER RESEARCH
Schriften zum europäischen Management
Herausgegeben von
Roland Berger Strategy Consultants – Academic Network
Herausgeberrat:
Prof. Dr. Thomas Bieger, Universität St. Gallen;
Prof. Dr. Rolf Caspers (†), European Business School, Oestrich-Winkel;
Prof. Dr. Guido Eilenberger, Universität Rostock;
Prof. Dr. Dr. Werner Gocht (†), RWTH Aachen;
Prof. Dr. Karl-Werner Hansmann, Universität Hamburg;
Prof. Dr. Alfred Kötzle, Europa-Universität Viadrina, Frankfurt/Oder;
Prof. Dr. Kurt Reding, Universität Kassel;
Prof. Dr. Dr. Karl-Ulrich Rudolph, Universität Witten-Herdecke;
Prof. Dr. Klaus Spremann, Universität St. Gallen;
Prof. Dr. Dodo zu Knyphausen-Aufseß, Technische Universität Berlin;
Prof. Dr. Burkhard Schwenker, Roland Berger Strategy Consultants
Die Reihe wendet sich an Studenten sowie Praktiker und leistet wissenschaftliche
Beiträge zur ökonomischen Forschung im europäischen Kontext.
Florian Geiger

Mergers & Acquisitions
in the Machinery Industry
With a foreword by Prof. Dr. Dirk Schiereck
RESEARCH
Bibliographic information published by the Deutsche Nationalbibliothek
The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografi e;
detailed bibliographic data are available in the Internet at http://dnb.d-nb.de.
Doctoral thesis, European Business School, Oestrich-Winkel, 2010

1st Edition 2010
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ISBN 978-3-8349-2293-9
V

Foreword

Which motives initiate managers to merge or to acquire other corporations? While
there is a long-lasting history of empirical research on M&A in a cross-industry
context, our knowledge about industry specific drivers of M&A is more than limited.
Given this background, the machinery industry is an attractive segment to address
questions on M&A motives – as it is on the one hand a very fragmented industry and
on the other hand a bundle of in some parts highly consolidated sub-industries.

In his thesis, Mr. Geiger makes an effort to answer the question why firms in the
machinery industry follow M&A strategies and how successful they are in their
transactions. This is not only a remarkable endeavour because Mr. Geiger uses some
hand selected unique datasets, but in particular, because he presents state-of-the-art
analyses which are competitive and meet highest international standards.
The thesis on hand carefully identifies and addresses open research questions related to
M&A strategies in a very specific industry. Its primary objective was to identify M&A
motives for different types of companies in various sub-segments of the machinery
industry by analyzing stock price and accounting data. Thusly objectifying managerial
action allows deriving recommendations for financing practice.
Another focus of the thesis concerns the use of case study methodology to analyze the
competitive advantages created by a merger in an already consolidated industry
segment. The documented empirical evidence provides significant value added for the
involved parties, in particular driven by transforming the competitive environment of
producers in that segment into a competition with non price items as differentiating
criteria.
VI
Mr. Geiger fully achieves the objectives of this dissertation. The analysis contains
many intriguing and surprising results which make this thesis an interesting read I
highly recommend to corporate finance researchers and practitioners. I wish for a high,
due circulation of this dissertation.

Professor Dr. Dirk Schiereck
VII

Preface

Being involved in a number of merger transactions in the machinery industry in my
function as a management consultant at Roland Berger Strategy Consultants my
motivation for this thesis was to generate a broader understanding of the motives and
influencing factors that initiate managers to engage in mergers or acquisitions and the
drivers for success of such transactions. After extensive literature research I realized
that the existing strand of theoretical and empirical research on mergers and
acquisitions in a cross-industry context falls short to reflect the individual
characteristics and specific drivers of the machinery industry. Consequently, I aim to
fill this gap by providing extensive empirical research analyzing merger and
acquisition strategies and motives of firms and evaluating their transaction success.
In my thesis, I follow a top-down approach focusing first on understanding underlying
merger motives of managers in the machinery industry. I examine whether firms'
merger motives are influenced by their prevailing industry environment. This strategic
question seems especially important for machinery manufacturers as this industry is
characterized by an heterogeneous compound of fragmented as well as concentrated
sub markets. Based on a unique sample of 330 machinery transactions, I indirectly test
for underlying merger motives applying statistical analyses on stock price and
abnormal return developments. In a second step, I examine wealth mechanics and the
success of merger transactions testing for various influencing factors presenting
univariate and multivariate regression results. Lastly, to further cross the bridge from
theory to practice, I apply case study analysis to enrich the empirical findings with
practical lessons learned from one of the most successful merger and acquisition
transactions within the last years. With my theoretical and empirical findings I am
confident to provide practitioners as well as researchers insights into mergers and
acquisitions that go beyond implications for the machinery industry.
VIII
This work would not have been possible without the organizational, theoretical,
personal, and academic support from my doctoral advisor Prof. Dr. Dirk Schiereck.
His critical questions, comments, and hints always helped to improve research and
work quality. Also the discussions with my second advisor Prof. Dr. Andreas Wald
enriched my thesis bringing additional aspects into analyses and interpretation of
results. Special thanks also belongs to the Schuler AG, namely CFO Dr. Wolfgang
Baur, who agreed in being interviewed for a detailed case study analysis providing
numerous valuable information and interesting discussions. Thank you also to all other
interview partners and friends who discussed methodology, research questions, and
results interpretation with me. The variety of different perspectives helped to shape
and round this dissertation.
Finally, I would like to thank my parents and family for their encouragement and
advice. Thank you for always supporting me with all possible means. The greatest
gratitude certainly belongs to my wife – you always stand by my side especially when
things are not easy. Together with you, there seem no unreachable challenges. Te
quiero mi media naranja!
Florian Geiger
IX

Table of Contents
FOREWORD ................................................................................................................................. V
PREFACE .................................................................................................................................. VII
LIST OF TABLES ......................................................................................................................... XI
LIST OF FIGURES ..................................................................................................................... XII
LIST OF ABBREVIATIONS ........................................................................................................ XIII
LIST OF SYMBOLS ................................................................................................................... XIV
1 INTRODUCTION .................................................................................................................... 1
2 THE INFLUENCE OF INDUSTRY CONCENTRATION ON MERGER MOTIVES .............................. 9
2.1 Introduction .................................................................................................................. 9
2.2 Literature review and hypothesis development ......................................................... 13
2.2.1 Literature review on merger motives ................................................................. 13
2.2.2 Literature review on the influence of industry concentration ............................. 17
2.2.3 Hypothesis development .................................................................................... 18
2.3 Data and methodology ............................................................................................... 21
2.3.1 Sample composition ........................................................................................... 21
2.3.2 Calculation of announcement period abnormal returns ...................................... 24
2.3.3 Explanation of cross-sectional influence factors ................................................ 25
2.4 Empirical results ........................................................................................................ 30
2.4.1 Univariate analysis ............................................................................................. 30
2.4.2 Cross-sectional regression analysis .................................................................... 37
2.5 Summary and conclusion ........................................................................................... 43
3 CORPORATE RELATEDNESS AND WEALTH CREATION IN MACHINERY MERGERS ............... 45
3.1 Introduction ................................................................................................................ 45
3.2 Literature review, market characteristics, and hypothesis development ................... 48
3.2.1 Literature review on relatedness ......................................................................... 48
3.2.2 Market characteristics of the machinery industry .............................................. 50
3.2.3 Hypothesis development .................................................................................... 52
3.3 Data and methodology ............................................................................................... 54
3.3.1 Sample composition ........................................................................................... 54
3.3.2 Calculation of announcement period abnormal returns ...................................... 55
3.3.3 Classification of relatedness ............................................................................... 57