Cross-Border M&A and Financial Performance: Empirical Evidence on Bidder/Target Companies

Achieving successful integration of mergers and acquisitions (M&A) continues to pose serious challenges for cross-border acquirers. The aim of this paper was to analyze the impact of cross border M&A on bidder and target companies’ post-M&A profitability, leverage and growth in sales/invested capital. We used a sample of 415 Italian bidder companies and 370 Italian target companies over the period of 2006-2013. Our analysis suggests that the cultural distance exerts positive effects on bidder companies’ post-M&A performance and a negative effect on target companies. Bidder companies better exploit the source of value in terms of competencies and resources, learning from their counterparties. The results suggest that the effect of culture distance is conditioned by the acquirer size, prior experience and managerial capabilities in dealing with cross-border cultural challenges. Profitability ratios show a significant increase in bidder companies, while target companies do not reveal any significant change in the comparison pre-post M&A. Leverage reveals no significant difference in bidder companies, while target companies have a higher leverage after a cross-border M&A. In cross-border M&A, the private equity funds as acquirer do not generate any incremental benefit from the target companies’ post M&A performance.