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Value Creation - Mergers and Acquisitions in the Banking Industry - Thesis Example

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This paper "Value Creation - Mergers and Acquisitions in the Banking Industry" reviews much of the scientific literature on the market for corporate control of banks and other financial institutions through mergers and acquisitions (M&A).The evidence indicates that corporate takeovers generate positive gains, that target firm shareholders benefit, and that bidding firm shareholders do not lose. …
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Value Creation - Mergers and Acquisitions in the Banking Industry
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Download file to see previous pages The dominance of the US and Europe in the current global financial services landscape means that most European and American banks enter new markets outside their region through transatlantic M&As. These developments are not lost on bank CEOs, who must keep a watchful eye on competitors’ strategies and assess what these acquisition moves mean to their own bank’s position. With their massive increases in market capitalization due to mergers, leading banks are in a strong position to invest heavily in new products or services and to make even larger acquisitions. This would pose a significant competitive threat that would require other banks to respond.
Indeed, all acquisitions will result from value enhancing unless there exists some element of market inefficiency, i.e., imperfect competition in either the product and/or labour market and/or agency conflicts. Most large mergers and acquisitions fall short of achieving the desired synergies. In January 1999, The Economist reported that study after study of past merger waves has shown that two of every three deals have not worked. And at least 50% of major mergers since 1990 have eroded shareholder returns. Reasons for failed mergers are diverse and complex, but most can be attributed to losing something: critical people, customers, market confidence. Uncontrolled costs, hidden losses, unrealized benefits, avoiding decisions, cultural barriers, and power struggles can also undermine the most promising unions.
Despite the high failure rate, M&As that succeed can pay large dividends. The most successful acquiring firms have clearly established and well-understood acquisition processes, both for ensuring good strategic decisions before the acquisition decision is made and for integrating the acquired firm once the deal is complete. This has created an interest amongst other banking firms to make a research on the M&As and the reasons behind their success or failure.   ...Download file to see next pagesRead More
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