DETERMINANTS OF M&A PREMIUMS: EMPRICAL EVIDENCE FROM KUWAITI FIRMS

Year 2018, Volume: 7 Issue: 1, 130 - 138, 30.03.2018

Mohamed Nazir Tarabay Jamil Hammoud

https://doi.org/10.17261/Pressacademia.2018.802

Abstract

Purpose- This is an
empirical study examining the premium paid over book value to target firms, and
attempts to discover whether there are patterns in the firms that are involved
in the acquisitions. We explore target financial characteristics that were considered
attractive by the acquirer and thus motivated the acquiring firm to pay a
premium to acquire these characteristics. This analysis will highlight some
motivating reasons behind the decision to integrate. 

Methodology- The
emperical study analyzes a sample of 68 M&A delas that took place between
2010 and 2017. The cross-sectional data gathered aimed at examining possible
relationships between various financial variables and merger premiums. The
objective was to determine the variables that were statistically significant in
explaining variations in merger premiums. In this research, the price offered
to acquire the stock is compared to the prevailing book price of equity.

Findings- Takeover
premium paid to target firm shareholders was found to be statistically
negatively related to net income, and significantly positively related to
percentage of ownership, debt-to-equity, sustainable growth rate, market value
of the merger transaction, and gross cash flow to current liabilities. 

Conclusion- This study
found that acquirers are seeking firms that are highly leveraged, with the
ability to grow in the future, and a good liquidity position. 

Keywords

Mergers and acquisitions, merger premiums, finance, Kuwait, M&A motives

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