The role of autonomy as a strategy for the financial performance of large acquisition targets : evidence from mergers and acquisitions on the London and Johannesburg stock exchanges

Abstract

This thesis empirically investigates the role of target autonomy on the financial performance outcomes of mergers and acquisitions (M&As), considering the relative size of the target to that of the acquirer. Managing a large M&A target in a takeover often proves a daunting task for acquirers, often leading to value destruction for acquirer Shareholders. Consistent with prior work, the study suggests the existence of systematic differences in takeover value creation because of the relative size between acquirer and target. The classical view holds that acquisitions of relatively large targets destroy shareholder value due to considerable amount of management attention drawn away from profitable activities to deal with the challenges of new business integration. This study uses the theoretical work on autonomy to argue that large targets are more likely to perform well when given autonomy, as opposed to the structural integration view both in Africa and Developed world. Extant literature often blames size of targets, relative to that of acquirer as a major driver of merger failures in creating value. If anything, I proffer that size, by itself may be tamed in an M&A by introducing a strategic angle, a moderator, where autonomy is granted to large acquirees and is irrespective of geography, or level of economic development. My findings explain that relatively large targets can enhance shareholder value if the large targets are given the necessary autonomy and support to continue their core business with minimal interference from the acquirer companies. This has clear implications for M&A practitioners. An important contribution of this study is the development of a conceptual framework, incorporating autonomy as a significant moderating variable of relative size and the acquirer performance where the target is considered of relative size compared to the size of the acquirer. This has been found to be a significant contributor to the size effect on acquisitions in Africa, as much as in the developed markets.