Critical success factors in mergers and acquisitions : an agency theory perspective

Abstract

Mergers and acquisitions are a common strategy used to attain corporate goals. Despite their popularity, many of these transactions fail to capture added synergies. The study aims to outline critical success factors in mergers and acquisitions and identify their underlying link to the Agency Theory. The study, which focused on a sample of Maltese corporates, aims to assess whether these critical success factors are given importance during transactions. Additionally, research will examine whether decisions during transactions were taken in light of the Agency Theory and also identify common practices used to overcome agency costs. The objectives of the study were attained through seventeen interviews conducted with representatives from local entities that had been through a merger or acquisition in recent years. Research established that firms gave importance to the five identified critical success factors during proceedings. These included having the right motive and achieving post-acquisition integration. The study also identified that the level of knowledge on the Agency Theory varied considerably amongst respondents. Many were not aware of the underlying theory. In fact, although all firms had strategies in place that minimised agency costs not all were implemented intentionally. The study, which carries a local perspective, concludes that firms which implemented strategies to minimise agency costs due to their knowledge of the Agency Theory were more effective than those that minimised these costs unintentionally. Strategies found to be successful included financial incentives for new managers, the setting up of acquisition teams and conducting due diligence prior to the transaction. The study provides useful insight on what managers, shareholders and creditors should be aware of prior to a merger or acquisition. Findings also shed light on effective strategies found to enhance the value of the new entity.