Merger & Acquisitions (M&As) as an important strategic vehicle in business: Thematic areas, research avenues & possible suggestions

Highlights

• Using a quali-quantitative approach widely known as meta-literature review, we conduct a comprehensive synthesis analysis on M&As.

• We systematically review a total of 155 recent and relevant papers published in 58 leading journals of ISI Web of Science (ISI WOS).

• We present influential aspects of literature: authors, articles, thematic areas, research gaps, contributions, and current landscape of M&A.

• It significantly contributes to enhancing our knowledge in international business, investment policies and outlines possible research agenda.

Abstract

Merger and acquisition (M&A) have become a foremost strategic alliance for business, product and geographic tactics in global market. Using meta-literature review, we conduct a synthesis analysis on M&A to assess motives, methods, financing sources, announcement effects, cross-border competitions, success-failure, valuation issues, and business strategies. We review 155 recent and relevant papers preferably published during 2015–2020 in 58 leading business journals of ISI-WOS through bibliometric study coupled with content analysis. We show influential aspects of journals, authors, articles, topics, thematic areas, findings, contributions, research gaps, suggestions, and current landscape of M&A. We recommend that firms having constraints might consolidate energies by resorting to productive M&A. Finally, we identify future research questions to extend the research avenues. Overall, this academic novelty significantly contributes to enhancing our knowledge in dynamic managerial capabilities, outlines further study agenda, and eventually provides business strategy & investment implications in global context.

Introduction

Merger & Acquisition (M&A) are the most popular means of corporate restructuring or business consolidations, and are a substantial part of today’s competitive economy. They are considered as one of the business strategies for enriched financial performance & growth (Anthony, 2019; Sahu & Agarwal, 2017). In addition, M&A are acknowledged as the important strategic alliance and firm’s favorite dynamic strategy in today’s competitive business; because firms can expose the required domestic and international strategies, and geographic tactics by successful M&A (Datta, Basuil, & Agarwal, 2020). As of now, we find that an integral part of finance is corporate restructuring which refers to modifications within the corporate capital structure, like adding debt and thereby increasing financial leverage. This kind of corporate streamlining is very important in finance and is widely done as a part of the financing activities of M&A. In general, M&A are of mainly three types: horizontal integration, vertical integration and conglomerate. Now-a-days, firms adopt the required M&A’s strategy as a dynamic strategic vehicle and a faster style of expansion, performance and growth. Hence as a significant regime in today’s business and corporate finance, M&A’s research has accumulated substantial knowledge. Given the relevance, a missive number of researches on M&A is conducted for a long time; and therefore, it might be quite valuable to systematically review the accumulated knowledge, analyze its past directions & underlying challenges, and above all identify the possible future research regimes on this important topic.

Based on business finance literature, we find that company’s ownership or control transformations have an important improvement in comparison between the current situation that may result the respective company more efficient, competent and stronger in available markets (Khurana & Wang, 2019). Hence, the use of M&A alliance conducted by companies are considered by investors with much importance for appropriate corporate capital budgeting & investment decision. Having this importance considered, in this meta-analysis, we attempt to better understand the most recent extant knowledge & research on M&A. We attempt to execute several complementary assessments: a citation analysis to identify those works that have the greatest impact on the field; a co-citation analysis to examine underlying acquaintances among the most topical publications; and above all, a thematic areas analysis to identify most common research regimes and overlapping disputes. In a nutshell, the purpose is thus largely descriptive and aims at capturing a panoramic view of what is being researched on M&A particularly in the most recent period. Methodologically, we examine the most relevant and recent articles on M&A published in 58 top tier finance, management and business journals. In particular, through this review analysis, we answer several particular research issues: (1) As of now, what are the influential aspects of M&A literature? (2) What are the key research streams in M&A literature? (3) What are the underlying nexuses among scholarly works in M&A literature? (4) What are the potential future research paradigms to explore in future?

Given the above background, this study significantly contributes to better understand the cluster of amassed knowledge on M&A. In particular, the study focuses on the current literature analysis available on M&A to portray the underlying methods, effects, differences, announcement consequence, competition, valuation, success & failure, and different strategies to categorize various opinions. The issues are important, because there are still ongoing arguments on the prospects and challenges of M&A in international context. So far, to the best of our knowledge, no prior review study addresses this issue in the past; hence this study could be a breakthrough in understanding the leading drives and current insights for M&A literature. As this is an original research idea (not replicating prior study), it has a global significance particularly for managers, investors, market practitioners, research analysists, and policymakers, among others.

We believe that our study has a notable contribution to academic literature that deserves broader recognition from academic community. The reason is that our meta-analysis is developed based on the latest and related referred papers on M&A which is extensive, up-to-date, and different from preceding academic literatures. For instance, we analyze that Mulherin, Netter, and Poulsen (2017) systematically conducts “survey of the surveys” with the resourceful summaries of a large chunk of scholarly works on M&A published by 2011 or around. As a value additive significant role to relevant literature, we attempt to replicate the comprehensive synthesis analysis of prior scholarly works by showing the influential aspects of journals, authors, articles, topics, thematic areas, findings, contributions, research gaps, suggestions, current practice & landscape of M&A. In addition, based on the recent and relevant papers preferably published during 2015–2020, we identify several future research questions for the global readers to extend the research avenues. We also analyze that the prior studies have mainly addressed the growth and market trends, fundamental motives; success & failure of M&A (Aguilera & Dencker, 2004; Bradley, Desai, & Kim, 1988; Datta, Pinches, & Narayanan, 1992; Dodd, 1980; Homburg & Bucerius, 2006; Paine & Power, 1984; Ramos-Rodriguez & Ruiz-Navarro, 2004) or specific research topics of M&A with empirical evidences, analysis & implications (1991, 1992, Aguilera & Dencker, 2004; Asquith, Bruner, & Mullins, 1983; Barney, 1988; Bettis & Hall, 1982; Chatterjee, 1986; Christensen & Montgomery, 1981; Halpern, 1983; Jarrell, Brickley, & Netter, 1988; Jemison & Sitkin, 1986; among others). For particular instances, the underlying synergies and motives in M&A seek greater operational efficiency and increased market power (Singh & Montgomery, 1987; Haspeslagh & Jemison, 1991), diminish market competition (Bradley et al., 1988), decrease reliance on a certain group of customers (Chatterjee, 1986), increase prices for consumers (Dyer, Kale, & Singh, 2004; Hitt, Hoskisson, & Ireland, 1990), synergy benefits, cost reductions and economies of scale (Homburg & Bucerius, 2006) or an effective coordination of resources (Chatterjee, Lubatkin, Schweiger, & Weber, 1992; Jarrell et al., 1988; Singh & Montgomery, 1987); circumvent financial markets barriers (Brouthers & Brouthers, 2000; Hennart & Park, 1993), and above all, achieve competitive business advantages (Barney, 1988, 1991; Capron & Pistre, 2002).

Therefore, we claim that this literature review is the initial attempt to systematically apply meta-analysis on the most recent and pertinent studies on M&A in the context of strategic management, corporate finance and above all, international business. For example, the bibliometric study of Ferreira, Santos, de Almeida, and Reis (2014)) systematically examines the extant strategies and idiosyncratic reasons for success & failure of M&A in international business based on relevant published papers between 1980−2010. In the same vein, the review-analysis of accounting and finance journals conducted by King et al.'s (King, Dalton, Daily, & Covin, 2004) investigate the basic motives, post M&A performance and signaling effects in the global market. In addition, we find that the meta-analysis of Datta et al. (1992) only examine the underlying factors that possibly lead to wealth effects, possible sources of financing and valuation issues of M&A. Our study is significantly different from prior studies that systematically embraces a structural and a comprehensive analysis based on the most recent, relevant and influential articles from ISI Web of Science (ISI WOS), and summarizes the extant research themes on M&A. Further, the identified thematic areas are carefully analyzed for identifying the probable future research directions with potential recommendations and suggestions. Hence, as the initial attempt, the findings of the meta-analysis might be a breakthrough in detecting the thematic areas and key research avenues on M&A. In summary, the review analysis reconciles the state of the art in our understanding of M&A, and thereby it provides a vital first stopping point in the research journey of scholarly workings in this area.¹

Our review analysis initially shows how the topic has evolved as an important strategic tool for the last several decades in global business. The content analysis of the study has very important multiple findings in terms of dynamic business strategy & investment implications. At first, the analysis concludes that M&A generally enhance firm performance as a result of synergies acquired, market power, firm profitability, risk diversification, and integrated management strategy. We find that monetary policy, trade credit, exchange rate and cross-border have important influence on M&A activities. In addition, SOE ownership, political, regulatory and greenfield uncertainty are negatively associated with M&A. Interestingly, firms that merge with financial institutions has no noteworthy effect after M&A, whilst in particular the IT industries generate higher values than before M&A. In general, culturally similar firms are more likely to merge; however, the announcement of cross border M&A has a positive market reaction. In particular, shareholder intervention and acquiring firms with larger boards and influential outside directors exhibit better performance in M&A. The study recommends that the earnout financing arrangement may significantly contribute to the reduction of valuation volatility in conducting M&A. Further, firms having constraints on the competitive market might enhance their strengths by resorting to productive M&A. Finally, we identify several specific future research questions in order to extend the research avenues on this topic. In the next section, we sequentially discuss the research methodology, current literature analysis for identifying the thematic areas, future research avenues and probable suggestions & recommendations. Eventually, the final section wraps up with the summary of meta- analysis on M&A.