International Success and Domestic Risks: 20 Years of M&As

1/21/2014

But there are nuances here. For example, meta analyses studying M&A activity in the 1990s found that shareholders tended to receive either significant negative or insignificant returns, with 50 percent of domestic acquisitions and 70 percent of cross-border acquisitions failing to produce intended results (Capron, 1999).

A study from 2007 focusing on European markets discovered that domestic acquisitions correlated to positive shareholder returns, while cross-border acquisitions correlated to wealth destruction for shareholders.

In contrast, however, quite a bit of recent research points to CB M&A activity in emerging markets resulting in significant increase in long-term shareholder returns for both the acquiring and target firms, while domestic acquisitions increase a target firm’s risk in the long term (Zhu & Jog, 2012).

So just taking this snapshot of studies of the past 20 years, we see a general reversal of the results since the 1990s, going from domestic success and international risk to domestic risk and international success, especially in emerging markets.

That is a huge game-changer for businesses that are looking to carry out IJVs or CB M&As and underlines their need to understand the cultures of the international groups they are partnering with.

Lynne Tarter