Impact of mergers and acquisitions on the operating performance of South African companies

Abstract

Most of the literature on mergers and acquisitions (M&A) has been based on studies that have been carried out in the Western world. Countries such as the United Kingdom as well as the United States boast of a lot of literature in this regard. There has however been little or limited research on the same topic in developing countries. This study investigates the determinants of the performance of companies that have been involved in mergers and acquisitions in South Africa from 1999 to 2016. Seventy-one transactions were chosen for this study. All the acquiring companies were listed on the Johannesburg Stock Exchange. The study used six diverse measures of operating performance. The performance measures employed in this study were the raw sales margin (RAWMARGIN), raw return on assets (RAWROA), industry-adjusted sales margin (IAMARGIN), the sales margin adjusted for industry, size and pre-M&A performance (ISPAMARGIN), the industry-adjusted return on assets (IAROA) as well as the return on assets adjusted for industry, size and pre-M&A performance (ISPAROA). Using these measures, data was compared three years prior to the merger as well as three years after the merger. An ordinary least squares regression model was then employed to ascertain how the different factors of post-M&A performance affected these six measures. The study found that the industry-adjusted return on assets model was the best model to predict post-merger operating performance. In this model, preM&A performance and being in the same industry were the only significant variables.