MONDAY 3 OCT 2011 3:17 PM


Firms could improve their decision-making by consulting institutional investors with regional expertise, said a professor from the M&A Research Centre at Cass following study results.

The study, conducted by the M&A Research Centre at Cass Business School and Credit Suisse, examined 40 large-sized cross-border M&A deals completed between 2002 and 2009. These showed that international M&A deals backed by investors with portfolios in the target market post higher returns than those which are not.

“Our findings suggest superior returns could be achieved by building a gradual dialogue between companies and investors with knowledge of a target foreign market before entering,” said Professor Miles Gietzmann.

Companies which had shares purchased by investors with expertise in the target country went on to outperform the FTSE All Share by 37%, revealed the study, with only 14% of firms able to do this without this type of investor support.

The findings also suggest that investors with regional expertise are more likely to predict the success of cross-border M&A deals while expressing their support by increasing their shareholding.

At the same time, share price returns are higher in the long-term on deals which are supported by institutional investors with expert knowledge of the target market. A 1% increase in investor shareholding of the acquiring company was linked to a 1.76% increase in share price performance over two years.

The findings imply that global investors use their intimate understanding of a market to assess the potential success of individual takeovers, making them a highly valuable source of information regarding the potential success and rewards of M&A deals.

“Companies that are considering a number of different regions to invest in can test the waters in advance of any specific bid by consulting investors with expertise in the region. These global investors can present a quick overall assessment of the attractiveness and viability of regional investment,” advised Gietzmann.