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Investigating Merger and Acquisition Deal Process: A Case Study Research from an Emerging Market

Roshani, Sahar | 2019

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  1. Type of Document: M.Sc. Thesis
  2. Language: English
  3. Document No: 52028 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Talebian, Masoud; Abdoh Tabrizi, Hossein
  7. Abstract:
  8. Earlier research mainly have addressed to a part of the M&A phenomenon and rarely have conducted multi-aspect analysis of it. On the other hand, unfortunately a high percentage of M&A deals collapses before completion which implicates there is not a thorough understanding of all the variables involved in the M&A process. Therefore, we conducted a case study research which is better qualified at providing in-depth, multi-aspects and multidisciplinary understanding and therefore novel findings of this multifaceted and complex phenomenon, M&A, in an emerging market context. Our research aims to highlight these questions: 1. what are the underlying incentives behind M&A deals initiation? 2. What are the factors impeding the completion of M&A deals? 3. What is a customized roadmap to facilitate the process in Iran? We have come up with new perspectives while answering our research questions.In regards with first question, we have found out that besides growth, market power, productivity, technology and knowledge transfer and so on that have existed in literature as M&A motives, we have found two new types of initiatives. One is in regards with risk hedging and the other is financing. Due to volatile economy of Iran managers tend to invest their money in businesses even in different industries to manage devaluation effects by exploring returns that are high enough to cover inflation. This mechanism leads to a more diversified portfolio of businesses; thereby, we can claim that the very context of Iran augments conglomerate mergers and acquisitions. Financing is another M&A initiation objective, where companies due to underdeveloped financing market, lack of financing tools and therefore difficulty in fund raising in Iran consider M&A deals as tools they can meet their needs.While exploring the factors impeding the M&A deal closure in Iran, we have identified behavioral issues such as trust, hubris, narcissism, lack of confidentiality, lack of effective communication, low speed, lack of incentives, lack of expertise, shareholding structure, cumbersome regulations, agency problem, conflicts among stakeholders as variables negatively affecting the M&A deal closure. Deal structure, engagement of mutually trusted third parties such as investment banks, financial advisory firms, consulting firms, and appropriate compensation package have been found to have modifying effects on some of the impediments and therefore, improve the probability of deal completion. Deal structure can be a modifying factor in some cases while it might be an impediment in another deal. It can positively affect the M&A deal completion by serving as a tool to contrive burdensome regulations, lack of tools and manage the expectations and concerns of parties to the deal. Intermediaries can solve disagreements over valuation, especially when it is caused by lack of knowledge and expertise. They also speed up the process as well as helping with the information asymmetry.In our suggested customized roadmap for Iran, we recommended face-to face meetings rather than cold calling in searching process due to cultural issues and lack of expertise, where managers can be educated about the process. We also allocated a step to discussion over valuation methodologies, which is of great importance due to lack of knowledge and expertise as well as managers’ reluctance to hire investment bankers. We also suggested engagement of third parties either official or unofficial, which not only accelerate the process but also help building trust as well as their modifying role for resolving conflicts, valuation disputes and behavioral issues. We highlighted due diligence and emphasized on much more considerations in Iran due to lack of data rooms, corruptions, flaws in accounting and tax regulations, lack of tools such as escrow accounts and lack of well-known auditory firms that can decrease the risk of truthfulness of the data
  9. Keywords:
  10. Merger and Acquisitions Initiatives ; Merger and Acquisitions Deal Completion ; Emerging Market ; Developing Countries

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