Alahakoon, Dona (2021) Factors Influencing the Business Acquisition Decision (the Deal Value) of Listed Companies in Australia. PhD thesis, Victoria University.

Abstract

Investments in business acquisitions have become a key part of corporate investment strategy. Business acquisitions are a vibrant investment decision which forms part of a firm’s growth strategy, that influences and determines firm value. Efficiency theory suggests that companies are motivated to invest in business acquisitions to realise synergy gains. Although there are previous studies undertaken to examine determinants of domestic business acquisitions in countries like the U.S and the U.K, determinants applicable in these countries may not have equal influence on business acquisition decisions of companies that are listed on the Australian Securities Exchange. Identification of factors influencing the business acquisition decision (the deal value) of companies listed on the Australian Securities Exchange provides a theroritical guidance on estimating the most possible purchase price consideration for acquirers and on formulating new policies to develop a more competitive capital market for regulators. The study by Erel et al. (2012) shows Australia is having the largest number of domestic mergers and acquisitions recording 4,875 during the period from 1990 to 2007 compared to all mergers and acquisitions recorded in all other countries. The importance of identifying factors influencing business acquisition decisions motivates this study to examine the factors influencing the business acquisition decision (the deal value) of acquirers that are listed on the Australian Securities Exchange. This study examines the factors influencing the business acquisition decision of companies that are listed on the Australian Securities Exchange, from acquirer’s characteristics and macro-economic point of view. This study also investigates whether the determinants related to acquirer’s characteristics and the macro-economic environment are impacted by the industry classification and the time. Specifically, the study examines how the determinants, such as acquirer’s characteristics (profitability, leverage and liquidity), and macro-economic characteristics (interest rate, exchange rate and stock market index) affect the business acquisition decision (the deal value) of acquirers that are listed on the Australian Securities Exchange. The Ordinary Least Squares (OLS) multiple regression assessment of the 160 completed business acquisitions representing 79.13 per cent of population in terms of total deal value of completed business acquisitions during 1997 to 2012 shows evidence that the acquirer’s profitability before considering the impact of the industry classification and the time, is statistically significantly positively associated with the business acquisition decision (the deal value) of acquirers that are listed on the Australian Securities Exchange. This finding lends support to previous empirical studies that greater profitability of an acquirer motivates them investing on business acquisitions. The study finds that the acquirer’s leverage before considering the impact of the industry classification and the time, is statistically positively associated with the business acquisition decision (the deal value) of acquirers that are listed on the Australian Securities Exchange. This finding contributes to previous empirical studies that greater leverage of an acquirer motivates them investing on business acquisitions. The study finds that the acquirer’s liquidity before considering the impact of the industry classification and the time, is statistically significantly negatively associated with their business acquisition decision (deal value) of acquirers that are listed on the Australian Securities Exchange. This finding is not consistent with the findings from prior studies. When acquirer’s business acquisition decision is influenced by their industry classification, this study support that the acquirer’s profitability and leverage have a statistically significant positive impact on the business acquisition decision (the deal value) of acquirers listed on the Australian Securities Exchange whilst the acquirer’s liquidity has a statistically negative impact on their business acquisition decision. When acquirer’s business acquisition decision is influenced by the time in terms of when the business acquisition occurs, this study support that the acquirer’s profitability and leverage have a statistically significant positive impact on the business acquisition decision (the deal value) of acquirers listed on the Australian Securities Exchange whilst the acquirer’s liquidity has a statistically negative impact on their business acquisition decision. This study finds that the macro-economic variables of interest rate and exchange rate are statistically significantly positively associated with the business acquisition decision (the deal value) of acquirers that are listed on the Australian Securities Exchange. This finding supports to previous empirical studies that higher interest rate and higher exchange rate motivate investments in business acquisitions. The study supports that the macro-economic variable, stock market index is statistically negatively associated with the business acquisition decision (the deal value) of acquirers that are listed on the Australian Securities Exchange. This finding supports to previous empirical studies that the lower stock market index motivates investments in business acquisitions. When acquirer’s business acquisition decision is influenced by their industry classification, this study support that the macro-economic variables of interest rate and exchange rate have a statistically significant positive impact on the business acquisition decision (the deal value) of acquirers that are listed on the Australian Securities Exchange whilst the macro-economic variable stock market index is statistically negatively associated with the business acquisition decision (the deal value) of acquirers that are listed on the Australian Securities Exchange. When acquirer’s business acquisition decision is influenced by the time in terms of when the business acquisition occurs, the study supports that the macro-economic variable stock market index has a statistically positive impact on the business acquisition decision (the deal value) of acquirers that are listed on the Australian Securities Exchange.

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