Mergers and Acquisitions: Examining Managerial Strategy Connection to Post Transaction Accounting Measures

Merger and acquisition activity accounts for trillions of dollars in our economy and currently fails to be productive at rates of 50 to 75%. Agency theory established a foundation for an inherit conflict between management goals and the needs of the shareholders which may account for this failure rate. The purpose of this convergent parallel design mixed study was to examine a purposeful sample of 35 US domestic mergers and acquisitions (M&As) from 1998 to 2002 to identify if there was a relationship between managerial intention as stated in Securities and Exchange Commission (SEC) required Form 10-K statements and M&A success. Government-required filings of the companies involved in M&As were analyzed pre- and post-merger via content analysis and accounting ratio analysis. A unique aspect of this study was to measure the range of achievement of managerial strategy by relating the objectives of M&As through senior management's own words as published in regulatory documents and the evidence of achievement of those intentions through analysis of financial statements. M&As represent an extreme commitment of company resources and focus, so the objectives and outcomes of management M&A decisions need to be evaluated once the merger or acquisition has been completed. Such analysis will assess the extent to which there is an alignment between what senior management has communicated to stakeholders and the subsequent financial outcomes following M&A activity. The findings of this study illustrate that management does not establish clear outcomes for measuring success of M&A events since a clear alignment between motives and measures is established but accounting measures related to success show no positive change. The most often recognized strategy is establishing a stronger market presence or power by acquiring or merging with a competitive or complementary business. The quantitative findings of this study support the lack of clear achievement of any positive difference when comparing pre and post M&A events since p-values for tested variables were insignificant in five of six variables (ranging from .115 to .565) with the one significant outcome (.040) for net sales which was expected. The resulting model established here is intended to increase M&A success in the future and creates a foundation for future research.