Apples plus oranges: the role of business profile similarity in shaping M&A outcomes: textual analysis of transaction data from China

Abstract

Purpose

The study aims at inquiring into the relationship between acquirer–target business similarity and mergers and acquisitions (M&A) transaction outcomes.

Design/methodology/approach

Relying on textual analysis of acquirers' and targets' business descriptions from M&A transaction synopses, the authors establish that posttransaction operating outcomes are negatively associated with acquirer–target business similarity.

Findings

While similar business profiles allow for optimization of overheads, sales growth and margins demonstrate better dynamics when acquirers and targets are more dissimilar, which allows for greater competitive gains. On average, targets are more dissimilar from acquirers than acquirers are from their competitors. The degree of competition within acquirers' industries and acquirer–competitors' business similarity are found to be positively associated with the likelihood of engaging in serial horizontal acquisitions involving more similar targets, mostly from the domestic market. Competitive pressure is evidenced to push acquirers for a faster completion of acquisition process. Cross-border acquisitions are found to be associated with lower acquirer–target and acquirer–competitors' similarity, which suggests that Chinese companies expand overseas primarily for strategic reasons of gaining a competitive edge rather than to simply improve sales.

Originality/value

The paper contributes to the limited pool of empirical literature relying on text mining techniques to establish the determinants of M&A transaction outcomes. The methodology used in the study outperforms the conventional techniques of operationalization of business similarities through General Industry Classification Standard (GICS) industry matching. The study investigates the intermediating role of intraindustry competition in fostering firms' acquisitiveness.

Citation

Mielcarz, P. and Osiichuk, D. (2022), "Apples plus oranges: the role of business profile similarity in shaping M&A outcomes: textual analysis of transaction data from China", Managerial Finance, Vol. 48 No. 12, pp. 1726-1753. https://doi.org/10.1108/MF-01-2022-0053