Determinants of premiums in acquisitions of JSE listed companies

Abstract

The success of an acquisition is not measured solely through market reaction or the ability to integrate the target, but also by the ability of acquiring firms to conclude the transaction at a price that does not fully erode the net present value benefits of the transaction. The aim of this research is to identify factors that result in and influence the premiums that are paid in acquisitions. The research then aims to analyse these independent variables in terms of their influence on acquisition premiums. Out of 11,927 transactions by JSE listed companies during the years 2000 – 2009, only 30 transactions met the defined sample criteria. Target firm characteristics, acquiring firm characteristics, and transaction characteristics were investigated to assess the predictive power of the independent variables as individual factors and as components of a multivariate framework that explain the premiums paid in corporate acquisitions on the JSE. Only two independent variables, namely managerial performance and acquiring firm leverage, were identified as significantly predictive variables for either market value or book value premiums through the use of more than one analytical technique. Results were not consistent across both book value premiums and market value premiums, and it was found that conflicting results materialised when different techniques were used to analyse the data. The conclusion of the study is that the variables analysed had limited predictive ability; there was a high incidence of outlying data, which significantly influenced the results of the study; and that the sample was smaller than ideal, and it would be advisable for further studies to get a larger sample by either changing the sample criteria, or by looking at data over a longer time period.