Growing through acquisitions : the long-term effects of total shareholder return of companies listed on the Johannesburg Stock Exchange

Abstract

Mergers and acquisitions (M&A) are critical components for companies searching to expand or improve organisational performance. This study examined whether companies listed on the Johannesburg Stock Exchange growing through acquisitions delivered superior total shareholder returns (TSR) compared to organic or mixed growth strategies from 2007 to 2016. The extensive existing share-price based literature indicate that M&A events are mostly value-destroying in the long-term, while comparative growth strategy studies are mostly ambiguous. The bulk of existing M&A literature is based on developed countries, while no equivalent growth strategy studies were found in South Africa. This research will aim to provide insight to companies looking to either expand locally or enter the South African market as to which growth strategy to employ. This study is quantitative of nature that considered secondary data in the form of historical share price, dividend and M&A data of companies listed on the JSE derived from the Thomson Reuters Eikon and McGregor BFA databases. Judgmental sampling was employed to identify a final sample of 104 companies that met the relevant criteria and was further divided into 43 organic, 30 mixed and 31 acquisitive growth companies. Statistical techniques in the form of independent samples t-tests and simple linear regression was implemented to test for differences and prediction. The research concluded that companies growing through acquisitions do not contribute significant different TSR compared to organic or mixed growth companies. In addition, it was highlighted that dividend yields are a significant predictor of TSR in specific instances.