EVALUATION OF THE PERFORMANCE OF COMPANIES POST MERGERS AND ACQUISITIONS DEALS IN TECHNOLOGY SECTOR

Abstract

Growth is one of the most powerful tools to measure the success of a company. Companies try to make the most out of the resources and opportunities available in order to achieve an optimum level of growth. Companies foray into organic and inorganic growth in order to increase their output and achieve profitability. This report examines the effect of mergers and acquisitions on the financial performance of companies in the technological sector. In tech sector, M&A has become a strategy to improve the core competencies and reduce the competitors to achieve sustainable growth. Companies looking for aggressive growth and profitability are participating in high valuation deals both domestically as well as globally. For the purpose of this report, 40 companies of the tech sector involved in M&A deals over the last decade have been listed. Our study employs a sample of 40 international mergers and acquisitions in technology sector between 2011 and 2017 with firm level financial data compiled from online databases. The value of these deals falls in the range of US$ 0.125 billion to US$ 65 billion. The study uses seven financial parameters to measure the performance of the acquiring company. These are Revenue, Earnings per share, and five accounting ratios – Current Ratio, Debt-Equity Ratio, Return on Investment, Return on Equity and Asset Turnover Ratio. For each deal, we have focused on the acquiring firm’s principle financial data for a period of seven years: 3 years before the merger or acquisition, the year of the deal, and 3 years after the deal was completed. The performance of the aforementioned parameters for the seven has been observed on the charts. Correlation and Regression tests have been used on the ratios in the year the deal took place. On the basis of performances, observed from the charts, a conclusion has been arrived at. It focuses on the movement of the Revenue, EPS and different ratios such as liquidity, profitability, efficiency and leverage. A limitation to the study is that the qualitative factors affecting the ratios have been overlooked and the unavailability of data for certain companies.