A Study of Strategic Takeovers
2 Consolidation, Value Chain Extension and Outside Industry Investors – Value-Generating M&A Strategies in the Construction Industry 7
72 Consolidation, Value Chain Extension and Outside Industry Investors – Value- Generating M&A Strategies in the Construction Industry Abstract The construction industry belongs – with a share of 10% of the global GDP – to the biggest industry sectors worldwide but faces serious challenges due to strong price competition, small profit margins and a highly fragmented market. To overcome these challenges, several construction companies intend to augment their market power by conducting Mergers and Acquisitions (M&A). In addi- tion, many construction firms become a takeover target by firms from outside the construction industry. This study examines, on the one hand, the value effects for construction firms when engaging in M&A. On the other hand, it surveys the wealth effects for non-construction firms when purchasing construction companies. Overall, the results suggest that these takeovers are beneficial for the bidder shareholders. However, the wealth benefits depend strongly on the strategic and geographical focus as well as the general stock market developments. Profitability and growth expectations of the bidder firm account for further relevant success factors. 82.1 Introduction Now, more than ever, the construction industry faces numerous challenges on a global and local scale (Rice, 2007). The complexity of most construction pro- jects poses high operational and financial risks. Construction companies can only approximate these risks, because most projects are unique, vary in size and characteristics and require always a project-specific monitoring, since the con- stellation of subcontractors usually differs (Black et al., 2000). The risks inher- ent to construction projects can be...
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