Abstract
Mergers and acquisitions (M&A) have formed an important part of growth strategies for profit- seeking businesses over the years and the question of whether M&As have actually created or destroyed value has continuously been debated. A large body of research has investigated M&As and their resultant performance, however, there are still conflicting views on how to measure such performance. This study investigated the post-merger performance of companies listed on the Johannesburg Stock Exchange (JSE) with the primary goal of investigating whether an M&A transaction led to a change in corporate financial performance of the acquiring or newly merged company. It is widely accepted that investors approve M&A transactions if, and only if, the transaction is likely to yield positive returns. This study applied an accounting-based approach to measure pre- and post-merger performance. The accounting data before and after an M&A transaction was compared to identify any changes in corporate financial performance. The accounting ratios applied were operating profit margin, return on assets, return on equity and the return on capital. These ratios were then supported by economic value added (EVA®) to measure post- merger performance. The variables applied indicated no statistical evidence of post-merger corporate changes in financial performance. The same results were found when applying the accounting variables at an industry level. However, the EVA® for the property and asset management industry indicated a significant decrease in corporate financial performance. It was therefore concluded that the sample of companies that had entered into an M&A transaction did not experience any significant change in corporate financial performance.
M.Com. (Finance)