The determinants of aggregate domestic merger activity for companies listed on the Johannesburg Stock Exchange

Abstract

Mergers and acquisitions remain a constant feature of both the local and international markets, but little is definitely know about what determinants of aggregate merger activityThe aim of this research report is to evaluate the dynamic relationship between a selected number of determinants and aggregate merger activity. We limited our selection of determinants to either macroeconomic or market factors, and limited our acquirers listed on the Johannesburg Stock Exchange.We defined aggregate merger activity using three measures, namely, quarterly deal frequency, quarterly deal value and a relative measure, which took the ratio of deal value over the JSE All Share Index. We utilised Gross Domestic Product, the Repurchase Rate, Consumer Price Index (CPI) and Producer Price Index (PPI) as our macroeconomic variables. Our market variables were the JSE All Share Index, the All Bond Index and the USD/ZAR Foreign Exchange Rate. Employing the appropriate data transformations, unit root, regression analysis and cointegration tests we were able to statistically test for the hypothesized relationships.Results indicated that only the Repurchase Rate was applicable in explaining the variation in the deal frequency variable, while none of the chosen determinants were significant in explaining the variation in the deal value and relative deal value measures. Overall, we found in all three cases that the fitted regression model did not explain the variation in our aggregate merger measure well.On a long-term equilibrium basis, we found that the All Bond Index and CPI were cointegrated with the deal frequency measure. The deal value measure had a long-term equilibrium relationship with the JSE All Share Index, while the relative deal value measure had a long term equilibrium relationship with the All Bond Index, CPI and PPI