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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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5 Conclusion 97

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97 5 Conclusion This doctoral thesis illustrates the wealth effects of M&A transactions within the construction industry. Despite the general findings of negative impacts of M&A on the bidder wealth in cross-industrial studies (Loughran and Vijh, 1997; Rau and Vermaelen, 1998; Andrade et al., 2001; Moeller et al., 2005), I find a dis- tinct picture for the construction industry due to the uniqueness of the products and its high fragmentation that causes low profit margins and a tense economic situation for the construction sector. Hence, my findings explain whether M&A serve as a remedy for construction firms to improve their economic situation or whether a M&A strategy is superior within the construction industry. To accomplish these objectives, I discuss in three studies the crucial aspects of M&A within the construction industry and its impact on corporate wealth. The first study focuses on short-term wealth effects in respect to a M&A an- nouncement. As assumed the positive wealth effects for the bidding companies show a distinct picture different of those from cross-industrial studies. Within the construction industry acquirers achieve abnormal returns from M&A. In line with Denis et al. (2002), Goergen and Renneboog (2004) as well as Mentz and Schiereck (2008) horizontal or vertical acquisitions with a domestic focus is the superior strategy for acquiring construction firms. Non-construction firms gain most from conglomerate takeovers of construction firms whereas the geographi- cal focus is of secondary relevance. The investigation of the bidders’ wealth ef- fects...

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