A qualitative analysis to identify takeover target criteria

Abstract

Purpose

This study proposes a qualitative analysis to identify takeover target criteria according to French Mergers and Acquisitions (M&A) practitioners.

Design/methodology/approach

A principal component factor analysis, applied to responses from 42 French M&A practitioners, highlighted four factors that summarize information about predictive variables and which explain the occurrence of takeover.

Findings

According to the surveyed practitioners, four main axes explain 83% of the occurrence of takeover. These axes reflect motivations related to the undervalued target theory, synergy theory and agency theory. The first factor defined by the size of the company, its rate of return and turbulence in the sector. A second factor opposed market value and dividend payout ratio to the liquidity variable. The last two factors are called the debt factor, structured by the debt variable and the value creation factor, which opposed the value creation variable and transaction volume to the growth opportunities variable. The results therefore confirmed the importance of some predictor variables tested in previous studies and showed different results.

Research limitations/implications

This study was limited in terms of sample size. The low number of responses obtained reflects the sensitivity of the subject, insofar as it highlights the predictive model used by M&A practitioners (professional secrecy). Future investigations will involve in extending the questionnaire approach to a larger sample of continental European M&A practitioners.

Originality/value

Predicting takeover targets has been the subject of abundant literature. The results do not converge and are sometimes contradictory. This paper undertakes a field study conducted using a questionnaire survey to detect predictive variables used by M&A practitioners in their identification of a target firm. The authors aim to identify a relevant indicators favorable to the occurrence of a takeover bid and which are/or not handled by the literature.

Citation

Meghouar, H. (2021), "A qualitative analysis to identify takeover target criteria", Management Decision, Vol. 59 No. 8, pp. 1895-1914. https://doi.org/10.1108/MD-04-2020-0438