The long-run share price performance resulting from mergers & acquisitions in South Africa: a calendar-time approach

With increasing globalisation and the need to expand into new markets quickly and efficiently, South African firms are more than ever relying on mergers and acquisitions (M&A). It is therefore important to revisit the debate on whether M&A is a beneficial long-term corporate strategy for shareholders, especially given that little South African literature exists on this issue. This study addresses this question by examining both the short- and long-run share return performances resulting from 204 mergers and acquisitions (M&A) over the period 2003-2014, involving companies listed on the Johannesburg Stock Exchange (JSE) as acquirers. The measurement of long-run performance of M&A and other corporate events such as share buy backs and seasoned offerings remains contentious primarily due to concerns on the appropriate benchmarks for abnormal share return performance as a result of these events and the methodology used to measure long-run realized returns from these events. With regard to benchmarks, a combination of four return factors deemed appropriate for the South African equity market is used to benchmark the abnormal returns related to M&A activities. These factors are the JSE’s Financial & Industrials Index (JSE index code J213 or colloquially known as the Findi), the JSE’s Resources Index (JSE index code J210 or colloquially known as the Resi), and the size and book-to-market factors. Two methods have been widely used to determine the long-run share return performance from corporate events: The Buy-and-Hold Abnormal Return (BHAR) approach and the more statistically robust Calendar Time Portfolio (CTP) approach. Using these two approaches, this study finds that, in the long term, there are no statistically significant abnormal returns associated with merger and acquisition transactions for the sample of South African acquirers tested. The correlation of a number of key transaction attributes with long-run M&A related share return performance is also examined in this study. The ...