Chapter 2-4 Flashcards
(19 cards)
What is an M&A wave?
A cluster of M&A activity during a specific period, often linked to economic and financial trends.
Name one key macroeconomic driver behind M&A waves.
Rising stock prices, deregulation, or new technologies.
What are typical motives in the first M&A wave (1895–1904)?
Economies of scale and ‘merging for monopoly’.
Which merger type dominated the second M&A wave (1922–1929)?
Vertical and market-extension mergers to avoid antitrust scrutiny.
What were common motives for mergers in the 1960s wave?
Defensive diversification and rise of management theory “good managers can manage anything”
What characterizes the 1980s ‘deal decade’?
Large, often hostile, cash-financed deals using debt and junk bonds.
What is a leveraged buyout (LBO)?
A buyout funded primarily by debt, often followed by operational restructuring or divestitures.
What caused the end of the 1980s M&A wave?
Government intervention (FIRREA), insider trading scandals, recession.
What triggered M&A activity in the 1992–2000 wave?
Globalization, deregulation, tech innovation, and stock-financed strategic mergers.
What is a roll-up merger?
Consolidation of small firms into a large player to gain economies of scale and market power.
What is the synergy hypothesis?
M&A can create value through cost savings, economies of scale, or economies of scope.
Define ‘agency cost of free cash flow’.
When firms use surplus cash on low-return investments or acquisitions instead of returning it to shareholders.
What is the managerial entrenchment theory in M&A?
Managers expand the firm to entrench themselves and make replacement more difficult.
What does the hubris hypothesis suggest?
Managers overpay due to overconfidence, resulting in zero total gains but positive target returns and negative bidder returns.
What is the difference between cash and stock M&A deals in terms of bidder returns?
Cash deals usually result in better bidder returns than stock deals.
What does empirical evidence suggest about combined gains in M&A?
Combined bidder and target gains are generally positive, though unevenly distributed.
Which methodology is most used in academic M&A performance studies?
Event studies, which examine stock price changes around announcement dates.
What is the difference between weak and semi-strong event study tests?
Weak tests ignore market factors; semi-strong tests compare returns to a benchmark like the S&P 500.
Name one factor that influences bidder stock returns according to recent evidence.
CEO traits (e.g., narcissism), corporate culture, CSR scores, and method of payment.
