Analysis of acquisitions in the commercial sector with bankruptcy forecasting models

Abstract

THE AIMS OF THE PAPER

We associate M&A transactions with increasing market share, improved operational efficiency, and the ability to create value, but several foreign studies have shown the failure of M&A transactions, including an increase in the risk of bankruptcy. Every year, a significant number of companies go bankrupt in Hungary, in the non-recession period, as well. The aim of our primary analysis is to examine, how the acquisitions made in Hungary between 2008 and 2016 affected the riskiness of companies, especially regard to their bankruptcy risk. Our secondary goal is connected to the identification of the change accompanied by the financial indicators.

METHODOLOGY

In our work, we examine the cases implemented in the commercial sector by companies subject to licensing by the Hungarian Competition Authority, ie with annual net sales of more than HUF 500 million. Apart from the “outlier” cases, we examine all the cases. The impact of the acquisition is analyzed with 3 bankruptcy models.

MOST IMPORTANT RESULTS

Regarding the non-financial characteristics of the transactions, we found that acquisitions typically take place between competitors, which presupposes strong market competition. This is also supported by the geographical position of the companies: in addition to Budapest, the examined transactions were characterized by companies based in the Great Plain. According to our financial results, the acquisition did not result in any efficiency gains in a significant number of companies, and there was no decrease in the risk of bankruptcy for the examined cases.

RECOMMENDATIONS

The results of our research carried out in Hungarian companies confirm the research published in the international literature, according to which M&A transactions fail in large numbers, adverse effects occur after the transaction: The results of our work may overshadow the well-known benefits and expectations of acquisitions. Based on all this, we recommend the companies planning mergers and acquisitions to take the possible failure of the acquisition into consideration.