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Value Creation within the Construction Industry

A Study of Strategic Takeovers

Series:

Joachim Vogt

Mergers & Acquisitions (M&A) are important strategic business options for corporations. Yet, the understanding of industry-specific drivers of M&A transactions is more than limited. Characterized by highly fragmented markets, cross-company production structures and increasing international business scope, the construction industry represents an attractive field of research to address questions on M&A motives. Based on comprehensively selected datasets and state-of-the-art empirical methods, the study illustrates the motives, the strategy and the effects of M&A transaction within the construction industry. Overall the analyzed M&A transactions tend to lead to an increase of corporate wealth. Important factors for a positive development comprise the peculiarities of the construction industry, the general market conditions and the nature of many takeovers. Still, the M&A transactions may also cause significant value destruction and may even lead to a failure of a company if an inappropriate strategy is applied.

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1 Introduction 1

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.1 Research Overview and Objectives Mergers & Acquisitions (M&A) and the construction industry have one thing in common. They both build new and unique entities. Due to their uniqueness the created entities differ in size, complexity and their character. Construction enti- ties are unique as e.g. an office can be 100 or 1000 feet high at varying foot- prints, design, material inputs or other parameters inducing different challenges on the architecture of the building. Some of the ways in which M&A are unique is the strategy that is required, the companies who bid, the culture the involved parties comprise and the location they encompass. Companies have several chal- lenges to address when considering M&A transactions: Is a horizontal acquisi- tion of competitors enhancing the market power and entailing synergies for the merging parties or are the employees reluctant to cooperate in the new entity causing extraordinary expenses instead of synergies? Can the vertical integration of suppliers raise the efficiency of the production process or is the consequent dependency on the integrated supplier detrimental? Does lateral diversification lead to substantial benefits, as revenue streams are distributed and the independ- ency from the core business is increased or causes this M&A type crucial diffi- culties due to the insufficient knowledge of the acquired business? Furthermore, the geographical focus of the M&A transaction significantly influences the ac- quisition decision. Should international diversification be preferred to national consolidation in the course of the globalizing world economy or is the familiar-...

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