Year: 2023
Type: book-chapter
Abstract: Mergers and acquisitions (M&A) are very large investments in which a company absorbs another company, which can dramatically change the profile of a company’s assets. This chapter discuss various types of M&A and the motives behind them, along with calculation examples. Just as in any other investment decision, the financial sanity of M&A activity can be assessed with the NPV method. However, the numbers tend to be much bigger than in ordinary capex decisions, hence the stakes are bigger as well. This makes behavioural issues even more problematic, as they can result in very large overvaluation, overinvestment, and value destruction. Likewise, if not properly understood and considered, environmental (E) and social (S) issues can have similar effects as the abovementioned behavioural issues and reduce the company’s financial value. While the effects of E and S issues on M&A valuation are increasingly understood, scarce academic attention is given to the valuation of E and S in their own right in M&A deals. An M&A deal can be massively value destructive on E or S, which may justify blocking the deal.
Authors: Dirk Schoenmaker, Willem Schramade
Institutions: Erasmus University Rotterdam, Nyenrode Business University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
OpenAlex ID: W4386708367