Excerpt
Drivers for Mergers and Acquisitions in the
European Banking Sector
Master thesis for obtaining the MSc Finance degree
Daniel Wülbern
ESCP-EAP, Department Finance
Paris, 14/05/2005
Master
Thesis
Daniel
Wülbern
ESCP-EAP
2
Drivers for Mergers and Acquisitions in the European Banking Sector
Agenda
1.
Introduction ... 6
1.1.
Executive Summary ... 6
1.2.
Objectives of this study ... 7
1.3.
Hypotheses ... 7
1.4.
Data and Methodology ... 8
1.4.1.
Data ...8
1.4.2.
Methodology ...9
2.
Theoretical background Literature Review ... 11
2.1.
Merger Terminology ... 11
2.2.
Types of M&A transactions ... 11
2.2.1.
Direction: Horizontal, Vertical and Conglomerate ...11
2.2.2.
Mode: friendly or hostile...12
2.2.3.
Initiator: Vendor or Acquirer ...12
2.2.4.
Type of payment: unlevered or levered ...13
2.2.5.
Type of value transfer: share deal or asset deal...13
2.2.6.
Functional criteria ...13
2.3.
Motivations for M&A general and banking related ... 13
2.3.1.
General Motivations for M&A ...14
2.3.2.
Motivations for M&A in the banking sector ...15
2.4.
How to define M&A success? 4 Perspectives ... 18
2.4.1.
Shareholder Perspective ...19
2.4.2.
Consumer Perspective ...21
2.4.3.
Employee Perspective ...22
2.4.4.
Society Perspective ...22
2.5.
Measuring success in bank related M&A transactions ... 22
2.5.1.
Event Studies...23
2.5.2.
Dynamical efficiency studies...24
2.5.3.
Performance studies...24
2.6.
Factors explaining M&A success in bank mergers ... 26
2.6.1.
Geographical focus...26
2.6.2.
Product / Activity focus ...26
2.6.3.
Size of the target...26
2.6.4.
Growth focus of a transaction ...27
2.6.5.
Risk reduction potential ...27
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2.6.6.
Profitability and cost efficiency of the target ...27
2.6.7.
Capital market performance of the target prior to a transaction...27
2.6.8.
Experience of the acquiring bank ...27
2.6.9.
Method of payment ...28
2.6.10.
Post-merger Integration ...28
2.7.
Problems arising in different phases of a bank M&A transaction ... 29
3.
European Banking sector ... 31
3.1.
EU Banking Market Structure ... 31
3.1.1.
Fragmentation...31
3.1.2.
Performance ...33
3.2.
Spain: Banking sector overview ... 35
3.2.1.
Current situation ...35
3.2.2.
Sector Performance ...35
3.2.3.
Legal framework ...36
3.2.4.
Fragmentation...36
3.2.5.
M&A activity ...37
3.2.6.
Drivers and obstacles for further M&A activity in Spain ...38
3.3.
UK: Banking sector overview ... 39
3.3.1.
Current situation ...39
3.3.2.
Sector Performance ...39
3.3.3.
Legal framework ...40
3.3.4.
Fragmentation...40
3.3.5.
M&A activity ...41
3.3.6.
Drivers and obstacles for further M&A activity in the UK ...41
3.4.
France: Banking sector overview ... 42
3.4.1.
Current situation ...42
3.4.2.
Sector Performance ...42
3.4.3.
Legal framework ...43
3.4.4.
Fragmentation...43
3.4.5.
M&A activity ...44
3.4.6.
Drivers and obstacles for further M&A activity in France ...45
3.5.
Italy: Banking sector overview ... 45
3.5.1.
Current situation ...45
3.5.2.
Sector Performance ...45
3.5.3.
Legal framework ...46
3.5.4.
Fragmentation...46
3.5.5.
M&A activity ...47
3.5.6.
Drivers and obstacles for further M&A activity in Italy...48
3.6.
Germany: Banking sector overview... 49
3.6.1.
Current situation ...49
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3.6.2.
Sector Performance ...49
3.6.3.
Legal framework ...50
3.6.4.
Fragmentation...50
3.6.5.
M&A activity ...51
3.6.6.
Drivers and obstacles for further M&A activity in Germany ...52
3.7.
Analysis of M&A transactions in the EU Banking sector... 53
3.7.1.
Domestic versus cross-border activity ...53
3.7.2.
Silence before the storm? ...53
3.7.3.
Four types of European M&A in the banking sector ...55
3.7.4.
Premium Analysis ...55
4.
Case study: Banco Sabadell's acquisition of Banco Atlantico ... 58
4.1.
Introduction ... 58
4.2.
Banco Sabadell: Corporate profile... 58
4.2.1.
A history of successful acquisitions ...58
4.2.2.
Product and regional focus ...59
4.2.3.
Strategy ...61
4.3.
Banco Atlantico: Corporate profile... 62
4.3.1.
History... 62
4.3.2.
Strategy, Product and regional focus...62
4.3.3.
Financial Analysis ...62
4.4.
Transaction details ... 63
4.4.1.
Main acquisition facts ...63
4.4.2.
Time table ...64
4.4.3.
Integration process ...64
4.5.
Strategic motives for the transaction ... 65
4.5.1.
Strategic fit...65
4.5.2.
Synergies...65
4.5.3.
Analysis of business units after the Atlantico acquisition...66
4.6.
Performance measurement and comparison ... 67
4.6.1.
Shareholder perspective: Abnormal return analysis ...68
4.6.2.
Financial Ratio analysis ...70
5.
Conclusion... 72
5.1.
Drivers and obstacles for a European Banking Consolidation... 72
5.1.1.
Drivers ...72
5.1.2.
Obstacles...74
5.1.3.
Reasons for Banco Santander's acquisition of Abbey National...76
5.1.4.
Where synergies in cross-border Banking M&A can be found ...76
5.1.5.
Taking a look at the USA ...77
5.2.
Conclusions from the Case Study ... 78
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5.3.
Possible consolidation scenarios ... 78
5.3.1.
Product driven consolidation scenario ...79
5.3.2.
Regional consolidation scenarios ...81
Appendix ... 85
Bibliography... 93
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1. Introduction
1.1. Executive
Summary
The banking sector in Europe is bound to change its shape soon. In many countries the
banking sector is still highly fragmented, especially in Germany and Italy. EU Banks
need to grow in size if they want to be able to compete globally with financial titans such
as Citigroup.
This study aims at analysing the key drivers and success factors for external growth via
Mergers and Acquisitions (M&A) in the European banking sector. After explaining the
theoretical background of Mergers and Acquisitions (Chapter 2), the study examines the
current condition of the EU banking sector followed by a more detailed view on the main
markets and players (Germany, UK, France, Spain, Italy) focussing on their potential
role in a future consolidation process (Chapter 3). It seems that important obstacles for
consolidation have been removed and banks may indeed engage in domestic and even
cross border M&A. A detailed comparison of Europe's largest banks will complement
this section. By analysing paid premiums in the five key European economies, we will
draw conclusions on the influence of market structure on the potential for consolidation.
In Chapter 4, the Banco Sabadell - Banco Atlantico case is analysed and discussed as
an example of a domestic bank merger. Emphasis is put on the logic behind the
operation, performance measurement and its strategic impact. The question, if value
has been created for shareholders as well as other stakeholders, will be addressed.
This recent case (2004) only allows for a preliminary analysis of the success of the
transaction, particularly in terms of achieved synergies versus expected synergies. The
case evidences typical sources for higher synergies in domestic M&A but reveals also
important sources of synergies that would apply in cross border operations.
In the final conclusion (Chapter 5), the market analysis is put into perspective to recent
developments and briefly compares it with the US Banking market. Key observations
from the case study are summarized and finally this section aims at developing different
scenarios for a future consolidation within the European banking sector.
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1.2. Objectives of this study
For the author this paper has been an incredible opportunity to learn about a very
exciting and crucial industry for every economy.
The overall objective of this study is to give Managers valuable information about what
have been the drivers and success factors in past transactions as well as what they
could look like in the near future. Although every M&A transaction is unique, there may
be common drivers, problems and solutions to them.
1.3. Hypotheses
If the target company lies in the same country than the acquirer (domestic merger), the
merger has a higher possibility of being successful due to the lack of various obstacles
that may arise in cross border transactions (culture, different legal or tax environment).
If the target company is smaller than the acquirer (in terms of assets) the merger has a
higher possibility of being successful as the bidding company may be more likely to
implement efficient management techniques introduced by the acquirer.
If synergies have been analysed and estimated correctly prior to the submission of an
offer price, the merger has a higher possibility of being successful as the false
estimation of synergies may lead to an overestimation of the target company value.
Fragmentation of the banking sector in many European countries is too high and leads
to lower profitability of banks operating in the market.
With a harmonisation of regulations throughout European markets cross border M&A
activity will increase.
EU Banks need to grow in size if they want to be able to compete globally with financial
titans such as Citigroup.
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1.4. Data and Methodology
1.4.1. Data
Extensive data gathering has been performed to analyse the European banking sector
and the M&A activity in the industry over the last five years.
The sample of bank mergers has been selected from a dataset provided by Thomson
Financial SDC (Securities Data Company Mergers and Acquisitions Database), of
originally 472 transactions in the EU financial services sector. To get to a manageable
size of relevant transactions the dataset has been refined as follows:
Only Banks (SIC code 6000)
Mergers with a transaction value above $100m
Transactions involving banks in EU15 Norway and Switzerland. In later analysis
only transaction in France, Germany, Italy, Spain, and the UK have been taken
into account.
% of shares acquired above 25%, in order to reflect a significant shareholding and
the take of control
Transactions over the last 5 years (from 2000 to end 2004)
Only completed mergers (exclusion of share repurchases and delisting as well as
intended and pending deals)
The result was a data set of then 88 relevant transactions. Thomson SDC is regarded
as a leading source among finance professionals. Nevertheless, to verify the data,
additional press research via Factiva has been performed.
For the realisation of the Cumulative Abnormal Return analysis in the case study, the
involved companies have to be quoted at a stock exchange for at least 252 trading days
prior to the announcement, in order to receive the target's closing prices and compare it
to the relevant index. As a matter of fact the analysis was only useful for the acquirer as
the target's free float was too low. Further regarding the case study analysis all publicly
available information such as annual reports, company presentations, web sites and
news has been used.
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1.4.2. Methodology
First of all, the theoretical background and the market study have been prepared based
on extensive literature review and the study of industry reports and company
information. Here, the author took advantage of the excellent library of the HWWA
(Hamburgischen Welt-Wirtschafts-Archiv) and used several online databases and
archives (such as Genios, EBSCOS, Proquest, The Economist, McKinsey Quarterly,
Reuters Business Insight, Multex, Lexisnexis and Factiva).
As for the methodology for the market analysis, a database consisting of Europe's 27
largest banks with a market capitalisation of above 10 billion had to be created. Then a
series of key ratios had to be calculated based on company's financial information given
in their annual reports or directly on their web sites. The resulting database helped to
determine differences within European markets with respect to profitability and
efficiency. For this, banks in one of Europe's five largest nations (Germany, France,
United Kingdom, Italy and Spain) were grouped together.
For the realisation of the case study analysis the relevant publicly available information
has been reviewed in detail and was complemented by interviews with involved
investment bankers. The performance analysis is based on the event study
methodology. The event study methodology is used to measure the average daily
abnormal returns associated with acquisition announcement. The event date, t
0
, is
defined as the announcement date of the acquisition.
The event study methodology applied relies on the market model based approach
introduced by Brown and Warner (1985):
(1) R
jt
=
j
+
j
R
Mt
+
jt
A linear regression model is applied to estimate the model parameters
j
and
j
for each
stock j. The parameters are estimated during a period of 252 trading days (one full year)
prior to the event window and are referred to as
j
D
^ und
j
E
^ . Expected returns
jt
R^ are
calculated as follows:
(2)
Mt
j
j
jt
R
R
E
D
^
^
^
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For market return R
Mt
, the national industry index is employed (IBEX30).
Abnormal returns of a stock j in the event window are calculated by subtracting the
expected stock return
jt
R^ from the observed stock return R
jt
in the event window:
(3)
jt
jt
jt
R
R
AR
^
The event window T is 41 days: T = [-20;+20] days, where t={0} determines the
announcement day of a transaction. Within the event windows particular periods are
studied.
Cumulated abnormal returns (CAR) for any interval [-t
1
;t
2
] during the event window T are
calculated as follows:
(5)
¦
t2]
[-t1;
t2]
[-t1;
AR
t
CAR
Both, the effects on shareholders of the targets and of the bidders can be analysed
separately and combined. To analyse the combined entity, this study follows Houston
and Ryngaert (1994). To calculate the abnormal returns for the combined entity of the
target and the bidder, they weigh the abnormal returns of the bidder AR
tK
and the
abnormal returns of the target AR
tG
by their market values MV:
(6)
tG
tK
tG
tG
tK
tK
n
Transactio
t
MV
MV
MV
AR
MV
AR
AR
,
The market capitalisation used for the entire event window, is the one observed at the
day before the event window.
An additional performance analysis, based on accounting data, will be applied to see
how financial ratios changed after the merger (see theoretical background section).
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2. Theoretical background Literature Review
2.1. Merger
Terminology
Mergers comprise all combinations (acquisitions) in which the buyer absorbs all assets
and liabilities of a target company.
We speak of Acquisitions when one company acquires a majority interest in another
company. In a friendly acquisition the target firm agrees to be acquired. Also, the legal
status of the acquired company may be kept.
A Takeover is a corporate action where an acquiring company makes a bid for a target
company. If the target company is publicly traded, the acquiring company will make an
offer for the outstanding shares. Takeovers can be friendly (amical) or hostile.
The terms, mergers and acquisitions, are used interchangeably throughout the paper
even though some acquisitions are not mergers.
2.2. Types of M&A transactions
No clear-cut classification for types of M&A transaction exists. M&A transactions can be
classified by their direction, the mode, the initiator, type of payment, type of value
transfer and by functional criteria.
1
Each classification will be explained in turn.
2.2.1. Direction: Horizontal, Vertical and Conglomerate
A horizontal merger defines a transaction where two companies, that have been
competitors in the same sector, combine their assets. The aim is to create economies of
scale or scope and to enhance market power. In the banking sector the combination of
Credit Lyonnais and Credit Agricole is an example for a horizontal merger. Another
popular example is the merger of Daimler Benz with Chrysler Corporation to create
DaimlerChrysler.
In a vertical merger two companies that operate along one value chain of a product or
service in the same industry combine. It is the combination of the vendor with a
1
Beitel. P., (2002)
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customer. The rationale behind such a transaction is to stabilize (1) the supply of raw
materials, or (2) customer demand for the finished product of the firm that is farther up in
the production process.
2
The combination of a car producer with an automotive parts
supplier would be an example for a vertical merger. However, vertical mergers go
against the trend of outsourcing and focusing on core competencies (core business) and
may therefore be hard to justify.
Even harder to justify are conglomerate mergers or lateral
3
mergers where two
companies of unrelated sectors combine. Managers often use the diversification motive
as the justification for conglomerate mergers. However, some of the biggest companies
in the world are conglomerates such as General Electric. Nevertheless in the 1980s and
1990s many conglomerates proved unwieldy and inefficient and were unwound (for
example ITT).
2.2.2. Mode: friendly or hostile
M&A transactions can be either friendly or hostile depending on the attitude of the target
towards the transaction. In a friendly transaction, constructive negotiations between
acquirer and target with a common goal are held. If the target management disagrees
with the acquirer and rejects an acquisition offer, the acquirer can go the way of a
hostile takeover via a public offer to the shareholders. A popular example was the
acquisition of Mannesmann by Vodafone. Hostile transactions may lead to costly
defensive measures of the target company that may change the financial attractiveness
of the transaction for the acquirer.
In the banking sector hostile takeovers are rare. However, the acquisitions of National
Westminster by Royal Bank of Scotland in 2000 and Paribas by BNP in 1999 were
hostile takeovers.
2.2.3. Initiator: Vendor or Acquirer
This classification, introduced by Berger (1998) differentiates M&A transactions by the
initiator of the process. The main difference lies in the impact on the transaction
process. For example a seller may determine the structure of the sales process (public
or controlled auction or exclusive negotiations). This process may lead to either
2
Ogden, J.P., Jen, F.C., O'Connor, P.F. (2003)
3
Achleitner, P.M., (2000)
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acquirers overpaying for the target as they overestimate the value or underpaying as the
target is regarded as weak because of his willingness to sell.
2.2.4. Type of payment: unlevered or levered
In unlevered M&A transactions the acquirer pays either in cash or with shares for the
target but does not use debt. Various forms of levered transactions exist, such as
Management Buy-outs (MBOs), Management Buy-ins (MBIs) or Leveraged Buy-outs
(LBOs). LBOs are irrelevant in transactions with banks due to their size. However, the
type of payment used in M&A transactions may be seen as a signal to capital markets
and as a factor explaining the success or a Merger (see below).
2.2.5. Type of value transfer: share deal or asset deal
The company or parts of it will be transferred to the acquirer via a share deal, where a
considerable shareholding is transferred, or asset deal, in which particular assets or
rights are transferred.
2.2.6. Functional criteria
With functional criteria transactions are divided into capital investment oriented
transactions and marketing or product-oriented transactions. The latter can be explained
with strategic motives.
Not part of this study are other forms of combinations of companies such as joint
ventures or strategic alliances although in the chosen case study joint ventures play an
important role and will be discussed briefly within that chapter.
2.3. Motivations for M&A general and banking related
Before analysing the motivations for M&A in the banking sector, general reasons for
M&A are examined. External (market driven) drivers for increased M&A activity in the
European banking sector will be analysed in section 3.
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2.3.1. General Motivations for M&A
Economic literature states various reasons for mergers. The overall predominant
motivation is synergies. Academics divide them into operating synergies and financial
synergies
4
. Operating synergies comprise improvements in any business function such
as management, labour costs, production or distribution, resource acquisition and
allocation or market power.
Financial synergies are obtained when the combined market value is greater than the
sum of the individual market values due to the "financial configuration of the merged
firm". However, in an ideal capital market, financial synergies would be impossible
because of the irrelevance of an individual firm's capital structure (Modigliani and Miller,
1958).
Brealey and Myers
5
give more sensible motives for mergers:
1. Economies of Scale and Scope (Synergies) largely depend on the direction of
the transaction (see above). Economies of scale arise when activities of the
merged company can be combined and streamlined. Possible sources of scale
economies include a leaner workforce, a smaller and more efficient distribution,
one single headquarter and reduction or complete exclusion of duplicate activities
in all business areas (e.g. R&D, back-office). Economies of scope are realized
when costs are spread over an increased range of output of different products or
services.
6
2. Economies of vertical integration may to a certain extent lead to considerable
advantages as it facilitates coordination and administration. But as explained
above it is against the principle of core business.
3. Complementary resources are gained if two companies who each possess
complementary resources such as a unique technology or human resources,
which in combination increase the value of the firm. In addition, the combined firm
may open up business opportunities that otherwise would not have existed.
4. Myers and Majluf's Pecking order theory (1984) may also provide a motive for
mergers in that cash poor companies may want to acquire cash rich companies
in order to be able to pursue all profitable investments. Vice versa, companies
4
See Ogden, J.P. et al (2003)
5
Brealey, Myers (2003)
6
Sudarsanam, S. (2003)
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with excess cash but few profitable investment opportunities may turn to mergers
financed by cash.
5. Eliminating inefficiencies through better management is one of the principal
motives for Private Equity firms who are increasingly involved in today's M&A
activity. This motive is particularly interesting when acquiring poor managed
companies with unexploited opportunities to cut costs.
Problematic explanations for M&A include the Hubris Hypothesis (Roll, 1986)
where the bidder's management overvalues the target because they overestimate
their ability to create value after gaining control. Finally, and related to the prior
explanation, Managements self interest may explain mergers where managers
pursue personal objectives instead of shareholder value maximization when entering
the transaction. The transaction may have offensive as well as defensive
motivations. The first relates to "empire building" and in the second the manager tries
to secure his job or wants to avert potential acquirers.
2.3.2. Motivations for M&A in the banking sector
The motivations for M&A in the banking sector can mainly be classified into value-
maximising motives and non-value-maximising motives.
7
Additionally there may be
specific strategic motivations resulting from the current market situation or from the
inside of the company. One frequently stated motive is growth, however, the primary
motive is shareholder value maximisation although managers may enter M&A
transactions for other reasons too as we have seen.
x
Value-maximising motives:
Not all but the most significant value-maximising motives in banking M&A transactions
are analysed below.
If we define value as the discounted value of expected future cash-flows, mergers lead
to increased cash-flows if either expected costs can be reduced or expected revenues
increased.
Possible sources of cost reductions in banking M&A:
7
See BIS (2001) or Berger, A.N., Demsetz, R.S. and Strahan, P.E. (1999)
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Economies of scale
Economies of scope
Economies of skill
Implementation of improved management skills and techniques
Reduced tax obligations
Increased market power leading to reduced prices of suppliers
If a bank needs to enter into a new market, M&A may be a cheaper means than
de novo entry
Economies of scale in the banking sector result predominantly from combining
particular back-office activities, for example customer services or the handling of
securities and money transfer.
8
Economies of scope in the banking sector may have three sources: provisioning,
production and distribution.
9
Economies of Scope from the production side exist for
example when services or products can be used at many places without limitation. A
good example for Economies of Scope from the distribution side is the possibility of
"cross-selling" existing products through existing distribution channels of the target
company.
Economies of Skill is certainly not as important as economies of scale as a rationale
for mergers but may contribute positively to the value of the merged entity. For example,
gaining access to specialist knowledge is very important especially in Investment
Banking. Also, in areas such as information technology and risk management value
enhancing knowledge can be gained through M&A.
10
Through the introduction of new managers who bring important management skills
and techniques into the acquired company further cost reductions may be realized. In
addition, these managers are more likely to take more drastic decisions, which may be
needed in order to achieve the expected cost reduction.
Reduced tax obligation may be achievable depending on local tax regimes. In Spain,
for example, the goodwill of the acquired company is tax deductible, which was relevant
in the Santander - Abbey acquisition.
By increasing the market power, a company is able to put pressure on suppliers to
grant more favourable conditions, i.e. lower prices, bulk discounts etc..
8
Beitel. P. (2002)
9
Dermine, J. (1999)
10
Schuster, L and Wagner, A. (2000)
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Entering a new geographical or product market through M&A provides cost
advantages compared to building a presence from scratch (see q-Ratio below). Costly
and time-consuming administrative work has already been completed and an existing
network of branches can provide a starting point for the merged company, as do already
established client contacts and a functioning network of suppliers.
Interestingly, empirical studies in the US showed that that economies of scale and
economies of scope in the banking sector are limited.
11
Possible sources of increased revenues in banking M&A:
Gaining critical size enabling banks to access new customer groups (for
example large customers or customers in different geographic regions)
Offering "one-stop-shopping" to customers through an increased product range
Attract new customers thanks to increased visibility and reputation
Increased market power in order to raise prices
After presenting this non-exhaustive list of sources that may lead to an increase in
expected future earnings (and hence value), other important value maximizing motives
have to be mentioned.
The information hypothesis, introduced by Seidel (1995), says that acquiring an
undervalued company that has been identified through information that is publicly not
available, is a value-maximizing motive. This kind of "insider" information may be the
result of intense business relations.
Weston and Chung (1990) introduced the q-Ratio motive, where the q-Ratio stands for
the ratio of equity market value of a firm and the replacement value of its assets. It is
also called Tobin's Q. The q-Ratio motive means that, with the aim of capacity
expansion, the acquisition of a company may be the more efficient (cheaper) way
compared with own capacity creation. This is true in the case when the own company
has a q-Ratio greater than one and the target a q-Ratio multiplied with the %-acquisition
premium of below one. Buying that company is cheaper than purchasing all the
necessary goods to replicate its activity.
11
Hawawini, G.; Swary, I. (1990)
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x
Non-value-maximising motivations:
Based on the Principal-Agent-Theory
12
founded by Ross in 1973 two problematic
motives for M&A in the banking sector have been identified. The first motive relates to
the Free-Cashflow-Hypthesis
13
, meaning that managers disposing of significant free
cash flow tend to pursue non-value-maximizing M&A transactions. In doing this, they are
trying to maintain or even increase their power. Related to this motive is the "manager-
utility-maximization"-Hypothesis, which has been verified in empirical studies about bank
mergers in the US.
14
Managers are increasing their utility function through components
like compensation, power and reputation, which normally increases with firm size.
x
Strategic motivations:
Other strategic motivations may indirectly also have impacts on valuation. These
strategic motivations explaining M&A activity are a result of the company strategy.
15
The
two main strategic motivations for M&A with particular meaning for EU banks today are
New strategic positioning
Establishing a presence in a new market
A new strategic repositioning where a company changes his focus on clients,
products or markets may be the response to margins drops in the existing business,
competition increases or technological change. A good example for a new strategic
positioning with a change in the product focus of a company is the acquisition of
Dresdner Bank by Allianz in Germany.
Due to exogenous factors such as globalisation and deregulation, establishing a
presence in a new market is becoming more and more important.
16
In the market
section main exogenous factors driving consolidation in the EU banking sector will be
discussed.
2.4. How to define M&A success? 4 Perspectives
12
Ross, S. (1973)
13
Jensen, M.C. (1986)
14
Bliss, R.T. and Rosen, R.J. (2001)
15
Achleitner (1999)
16
Berger, A.N., DeYoung, R., Genay, H. and Udell, G.F. (2000)
Master
Thesis
Daniel
Wülbern
ESCP-EAP
19
A general definition of M&A success seems to be problematic as it does not hold for the
various parties affected by the M&A transaction. Therefore Berger, Demsetz et al (1999)
differentiated between shareholders, managers and the government regarding the
success of a merger
17
. Looking at different stakeholders involved in such transactions,
its success should also be regarded from the perspective of clients, employees and
society. Studies analysing M&A transaction generally focus on the impact on
shareholders but considering the impact on the above mentioned other stakeholders is
also important.
Figure 1:
Overview of merger success from 4 different perspectives
Merger
success
Employee
Perspective:
Success through:
·
Secured jobs
·
Increased salaries
·
Improved career
opportunities
Manager Perspective:
·
Compensation
·
Reputation
·
Power
Client Perspective:
Success through:
·
Improved
accessability to
existing products and
services
·
Access to new
products
·
Price reductions
·
Improved service
·
Continuity of service
Shareholder Perspective:
Success through increase in shareholder
value:
·
Growth and profitability
·
Realisation of synergies
Society Perspective:
Success through:
·
Securing local presence
·
Securing jobs
·
Reducing the risk of liquidation
Merger
success
Employee
Perspective:
Success through:
·
Secured jobs
·
Increased salaries
·
Improved career
opportunities
Manager Perspective:
·
Compensation
·
Reputation
·
Power
Employee
Perspective:
Success through:
·
Secured jobs
·
Increased salaries
·
Improved career
opportunities
Manager Perspective:
·
Compensation
·
Reputation
·
Power
Client Perspective:
Success through:
·
Improved
accessability to
existing products and
services
·
Access to new
products
·
Price reductions
·
Improved service
·
Continuity of service
Client Perspective:
Success through:
·
Improved
accessability to
existing products and
services
·
Access to new
products
·
Price reductions
·
Improved service
·
Continuity of service
Shareholder Perspective:
Success through increase in shareholder
value:
·
Growth and profitability
·
Realisation of synergies
Shareholder Perspective:
Success through increase in shareholder
value:
·
Growth and profitability
·
Realisation of synergies
Society Perspective:
Success through:
·
Securing local presence
·
Securing jobs
·
Reducing the risk of liquidation
Society Perspective:
Success through:
·
Securing local presence
·
Securing jobs
·
Reducing the risk of liquidation
Source: Adapted from Beitel (2002)
2.4.1. Shareholder Perspective
The paramount economical goal of an M&A transaction has to be the increase in
shareholder value. The shareholder value approach was first introduced by Rappaport
in 1986 and regarding the responsibility of companies he states: "In a market-based
economy that recognizes the rights of private property, the only social responsibility of
17
Berger, A.N., Demsetz, R.S. and Strahan, P.E. (1999)
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- MSc Daniel Wülbern (Author), 2005, Mergers and Acquisitions in the European Banking Sector / Fusionen und Akquisitionen im Europäischen Banken Sektor, Munich, GRIN Verlag, https://www.grin.com/document/186028
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