Determinants and characteristics of merger and acquisitions, and target firm performance: evidence from Turkey

Abstract

Mergers and acquisitions (M&A) come in waves, both economy and industry-wide. During these waves, billions worth of assets change hands. Accordingly, a vast empirical literature has sought to uncover the forces leading to mergers. Different research has contributed to literature about drivers of merger waves, but their conclusion can vary according to the time period and countries under study. In Turkey, however such a study explaining the determinants and characteristics of merger waves has been missing despite the fact that there has been 544 M&A activity since 1998. Hence, the objective of this research is to identify the determinants and characteristics of M&A’s in Turkey. We found that, Turkish M&A activity is mainly driven by foreign firms’ interest to purchase domestic assets. In terms of domestic acquirers, with the ease of positive macroeconomic outlook and increased liquidity, domestic acquirers with high current assets purchased relatively small but high performing, having high return on assets firms in Turkey. On the target firm side, they sold their highly priced shares to foreign and domestic bidders. In line with overvaluation hypothesis and other behavioral theories, stock market index is the main determinant of M&A activity in Turkey. However, presence of liquidity is also important to propagate a wave. It is also found that the Turkish market reacts only to bid price, no other variable related to deal characteristics, and/or firm characteristics, contrary to other country findings in the literature. In addition, stock market reaction to acquisition is weak, even negative following the month of acquisition, which may be a sign for insider trading. Lastly, we prove that target firms can be predicted with high accuracy using firm specific accounting data.