The Study Of Merger Type And Merger Performace Based On The Theory Of Industry Life Cycle

M&A leads to the change of ownership or transferring of control right and further the change in operation, which belongs to the configuration of stock resources.In microscale, it can influence the status as well as the performance of a company;In mesoscale, it can transform market structure and influence industry concentration;In macroscale, it can influence industrial upgrading and national economic growth. However, cases of M&A failures due to the blindness of participating in and the ineffectiveness of post-merger integration are of common occurrence. Masses of empirical studies also indicate that the performance of M&A is negative. Determining the M&A type is the first step to formulate the M&A program. On what point of time to initiate a merger? How to identify the target enterprise? These decisions can exert direct influences upon the performance of M&A.This article, which is based on the framework of the industry life cycle theory, divides industry evolution into three phases of growth, maturity and recession, and categorizes the M&A types into horizontal mergers, vertical mergers and conglomerate mergers according to the relationship of the industries to which the two parties involved belong, and deeply analyses when the M&A motivations have the foundation of coming into their beings and what kind of M&A types should be chosen. This article selects 392 M&A events during 2006 to 2010 in which the merging companies is listed in Shanghai & Shenzhen’s A-share markets, and applies the methods of mean test and multi-regression to check the performance of M&As of different type in different industry evolution phases. The research outcomes show:(1)Generally speaking, M&As lead to descending in the rate of return on total assets significantly;(2)As for growth-type industry, horizontal mergers are better than vertical mergers and conglomerate mergers;(3)As for mature industry, vertical mergers are better than horizontal mergers and conglomerate mergers;(4)as for recession-type industry, still horizontal mergers are better than vertical mergers and conglomerate mergers. There is no support for the hypothesis of recession-type industry. The possible reason is that the post-merger integration of conglomerate mergers are much more difficult than that of horizontal mergers and vertical mergers, and the negative effect of post-merger integration failure can even offset the positive effect generated by the correct choice of M&A strategies. Therefore, when it comes to make M&A strategies, managers should take full account of industrial environment, and keep in mind that the post-merger integration is as the same important.Finally, according to the status quo of M&A market and the research outcomes of this article, advices are given to enterprises and related sectors: ①Improving the internal management and the external monitoring levels of enterprises to prevent the managers from seeking personal gains and the shareholders from interests-delivering activities; ② Deepening the reform of state-owned companies, perfecting the governance structures of state-owned companies, and improving the marketization levels of operation in state-owned companies; ③When an enterprise formulates a M&A strategy, special attention should be paid on the industry circumstances, selecting proper M&A strategy, and avoiding blindly following the trend; ④Managers should not underestimate the difficulties in post-merger integration and should reinforce the investment in integration.