Are Mergers and Acquisitions Boosting Company Performance in the Technology, Media and Telecommunications Sector?

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Abstract

TMT (Technology, Media and Telecommunications) companies account for the largest number of M&A deals worldwide. This stems from their need to constantly evolve due to their high dependence on technological change. Participation in M&As is one of the fastest and most strategically promising ways to accelerate product development, gain access to new technologies, and increase competitive advantage. More than 60% of M&As are unsuccessful and do not contribute to company value creation. Will this conclusion hold for TMT companies, characterized on the one hand by rapid development and high growth rates, and on the other hand by high risks? This paper aims to assess the impact of M&As on the operating performance and value of TMT companies. In contrast to previous literature, it evaluates the M&A performance of TMT companies over the long term by applying an accounting studies logic and an economic profit model. It also contributes to
identifying the specific factors that influence the success of TMT M&As. Analyzing a sample of 203 TMT M&As completed between 2003 and 2018, we observe a positive impact on the operating performance (2.2% increase in EBITDA/Sales) and value (+$16.3m in Economic profit) of the combined companies. M&As paid for in stock outperform those paid for in cash, confirming the investment opportunity theory. Domestic M&As are the most efficient due to cultural similarities. We also find a negative impact of the acquirer’s R&D intensity on post-M&A performance due to the technology substitution effect. Our findings will be useful to managers and boards for deciding whether to participate in TMT M&As and in understanding the factors that influence the success of these deals.

About the authors

A. Kostochko

HSE University, Moscow, Russia

Author for correspondence.
Email: avkostochko@hse.ru

S. Grigorieva

HSE University, Moscow, Russia

Email: sgrigorieva@hse.ru

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