Mergers and Acquisitions - The Profitability of Transactions in European Financial Industry

Abstract

This thesis focuses on mergers and acquisitions in the European financial industry and the main characteristics of these transactions generally. Purpose of this study is to provide the reader with wide understanding of transactions and to study the acquirers’ announcement returns. Despite several researches about the financial industry transactions being conducted, especially regarding the U.S. market, it remains a fresh topic in Europe as it offers a unique opportunity to study different cultures and many regulations in the financial industry.

The study is divided into various sections to observe the topic from several aspects. First, the basic concept of mergers and acquisition and the merger waves are discussed along with the theories of shareholder value increasing and decreasing. Then the key information of the actual transaction process is introduced with subtopics covering the crucial aspects to consider before the transaction and the key issues after the transaction what makes the difference between successful and unsuccessful ones. After this the factors impacting the profitability are discussed before the literature review of earlier researches in this study area. Lastly, the data and methodology used in this thesis are described for the reader before the actual results of the empirical study and the final conclusions.

This thesis discovers that mergers and acquisitions are not value creating for the acquirers’ shareholders. During the [-20, 20] event window observed the study sample generated statistically significant negative cumulative abnormal returns. This is consistent with the research’s null hypothesis as the mergers do not provide shareholder value in short-term period in the European financial industry.