Financial Performance of the Target Companies: Before and After Acquisitions

Burak Dogan () and Umut Ugurlu
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Burak Dogan: Banking and Insurance Program, Department of Finance, Banking and Insurance, Vocational School, Bahcesehir University, Istanbul 34353, Turkey
Umut Ugurlu: Department of International Finance, Faculty of Economics, Administrative, and Social Sciences, Bahcesehir University, Istanbul 34353, Turkey

JRFM, 2024, vol. 17, issue 12, 1-27

Abstract: This study investigates the financial performance of target companies involved in mergers and acquisitions (M&As), aiming to reveal the dynamics affecting these organizations pre- and post-transaction. Utilizing a comprehensive dataset, we analyze the financial outcomes of M&A deals globally, spanning from 2010 to 2019. Employing various financial ratios, such as liquidity ratios, profitability measures, leverage ratios, asset management ratios, and market valuation metrics, this research provides an understanding of how M&As influence the financial performance of target companies. The key findings suggest that target companies experience significant changes in their financial ratios post-acquisition, with liquidity and profitability ratios showing marked fluctuations. The study shows that the method of payment (cash vs. non-cash) and the size of the deal significantly influence the post-acquisition financial performance of target companies. Cash-based and lower-valued deals are found to have a more positive impact on financial stability and growth metrics. This research contributes to the existing body of knowledge by highlighting the marginal effects of acquisition strategies on target companies’ financial performance. Our findings provide practical insights for potential acquirers, suggesting that the choice of acquisition method and deal size can significantly affect the financial outcomes of M&A activities.

Keywords: mergers and acquisitions; financial ratios; target companies; cash-based deals; non-cash-based deals (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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