Growth options in mergers

Date Issued:: 2011
Summary:: This dissertation is a growth options analysis of high tech mergers. I analyze the impact growth options have on the likelihood of a high tech firm being acquired, the premiums paid for these acquisitions, and the synergies that result from these mergers. I examine how proxies for growth options interact with those for the resources needed to fund growth. A significant part of my analysis involves developing and examining a new growth options proxy, Gamma, the return on investment a firm realizes in growth options value from its R&D expenditures. I find that firms that are better than their peers in converting R&D into growth options value, i.e. they have high Gamma, are more likely to be targeted for acquisition than low-Gamma firms. The premiums paid are impacted most by the characteristics of the deal, primarily when deals are competitive, and GDP growth. The acquirer's Gamma, however, is very significant in predicting premiums. Acquiring firms with high Gamma pay significantly lower premiums. The synergies that result from a merger are measured in short and long run returns, and most mergers result in value destruction to the combined firm. In the fewer than 20% of the mergers that resulted in positive long run abnormal returns, the premium paid and whether the deal was competitive significantly reduced the returns. However the two characteristics that significantly increased returns were the acquirer's Gamma and if the acquirer and target had complementary characteristics for growth options levels and free cash flow.

Title:	Growth options in mergers.	118 views 51 downloads
Name(s):	Davis, Sean M. College of Business Department of Finance
Type of Resource:	text
Genre:	Electronic Thesis Or Dissertation
Date Issued:	2011
Publisher:	Florida Atlantic University
Physical Form:	electronic
Extent:	xii, 178 p. : ill. (some col.)
Language(s):	English
Summary:	This dissertation is a growth options analysis of high tech mergers. I analyze the impact growth options have on the likelihood of a high tech firm being acquired, the premiums paid for these acquisitions, and the synergies that result from these mergers. I examine how proxies for growth options interact with those for the resources needed to fund growth. A significant part of my analysis involves developing and examining a new growth options proxy, Gamma, the return on investment a firm realizes in growth options value from its R&D expenditures. I find that firms that are better than their peers in converting R&D into growth options value, i.e. they have high Gamma, are more likely to be targeted for acquisition than low-Gamma firms. The premiums paid are impacted most by the characteristics of the deal, primarily when deals are competitive, and GDP growth. The acquirer's Gamma, however, is very significant in predicting premiums. Acquiring firms with high Gamma pay significantly lower premiums. The synergies that result from a merger are measured in short and long run returns, and most mergers result in value destruction to the combined firm. In the fewer than 20% of the mergers that resulted in positive long run abnormal returns, the premium paid and whether the deal was competitive significantly reduced the returns. However the two characteristics that significantly increased returns were the acquirer's Gamma and if the acquirer and target had complementary characteristics for growth options levels and free cash flow.
Identifier:	773196800 (oclc), 3357425 (digitool), FADT3357425 (IID), fau:4000 (fedora)
Note(s):	by Sean M. Davis. Thesis (Ph.D.)--Florida Atlantic University, 2011. Includes bibliography. Electronic reproduction. Boca Raton, Fla., 2011. Mode of access: World Wide Web. FboU
Subject(s):	Consolidation and merger of corporations -- United States Corporations -- Finance Conglomerate corporations -- United States
Persistent Link to This Record:	http://purl.flvc.org/FAU/3357425
Use and Reproduction:	http://rightsstatements.org/vocab/InC/1.0/
Host Institution:	FAU

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