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Student
Title
Supervisor
Faculty
Educational Programme
Final Grade
Year of Graduation
Sergej Sal`kov
Determinants of payment method in mergers and acquisitions
Bachelor’s programme
2014
National Research UniversityHigher school of EconomicsFaculty of Economics Specialization Corporate finance ABSTRACT BACHELOR WORK "Determinants of payment method in mergers and acquisitions" Complied WithStudent group 41ÈFF1Salkov S.d. Supervisor

Lecturer, Ph.d. Partin Ilya Markovich Moscow 2014 IntroductionDespite the fact that the topic of mergers and acquisitions is the subject of intense interest from both academic research and the real business sector, we cannot say that the topic is fully described in the scientific literature.It is clear that the greatest interest is researching the effectiveness of merger and acquisition deals as a whole, as well as the factors determining effective deal. According to a study by Tim Loughran and Anand M. Vijh (1997), the method of payment is one of the most important factors influencing the effectiveness of trade in the form of excess returns of the shares of the acquiring company in the long run. Moreover, the choice of method of payment means:· the choice of the company's debt load,· the allocation of risk between the shareholders of the acquiring company and the target company,· signal to the market that the management of the acquirer company ROI.Thus, the analysis of the determinants of the method of payment is of high relevance for practitioners. Currently in press is an active discussion of what should be the value determinants of merger and acquisition in the deal, for example, the level of debt load company-buyer. Investigation of determinants of payment method in the BRICS are already conducted in Grigoryeva S. A. and Fomenko N.V., however, comparative analysis of comparable models and similar data was not carried out. The comparative analysis of the determinants of the method of payment transactions, M&A between the BRICS and Western Europe, as well as between the different economic cycles, which makes the study of scientific novelty and relevance from an academic point of view.The purpose of this paper is to identify the most important determinants of payment method in mergers and acquisitions in emerging and developed markets.The main objectives of the study: to define concepts, explaining the theme of mergers and acquisitions, to analyze the stats on the mergers and acquisitions market in developed and developing capital markets, to analyze the scientific work on identifying the determinants of payment method in mergers and acquisitions,4. to formulate a hypothesis about the determinants of payment method in mergers and acquisitions in the BRICS countries, Germany and the UK, to identify the most appropriate method for the study of determinants of payment method in mergers and acquisitions,6. to make the sample, build a model and a study of determinants of payment method in mergers and acquisitions in the BRICS countries, Germany and the UK.The object of this research are mergers and acquisitions in emerging capital markets in the BRICS countries and developed capital markets in Germany and the UK. The subject of this study are the determinants that influence the choice of payment method in mergers and acquisitions.The structure of the thesis is the following. In the first chapter dealt with mergers and acquisitions market and analyzed the work on mergers and acquisitions. The second chapter provides theoretical justification applicable in work methods and formulated the hypothesis. The third chapter describes the study's sampling, a statistical and econometric analysis.Hypothesizes of availability of financial resources.According to the theory of a hierarchy of methods of financing (the "pecking order theory"), put forward by Jensen in 1984, managers prefer to attract financial resources in the following order: domestic sources of financing, debt financing, raising funds in the equity markets. The least preferred option, according to this theory, is the use of actions as a means of payment, in a situation where the first two sources are exhausted.Hypothesis 1. Large free cash flow, the size of the company and little financial leverage provide high availability of cheap financial (and borrowed) resources for the purchasing company and the opportunity to raise additional debt, which in turn leads to a greater likelihood of using cash as a means of payment.Hypothesis 2. A large proportion of physical assets provides high availability of cheap financial (and borrowed) resources for the purchasing company and the opportunity to raise additional debt, which in turn leads to a greater likelihood of using cash as a means of payment. Hypothesis 3. The importance of liquidity ratios and proportion of current assets provide high availability of cheap financial (and borrowed) resources for the purchasing company and the opportunity to raise additional debt, which in turn leads to a greater likelihood of using cash as a means of payment.The hypothesis of investment opportunities.Hypothesis 4. High sales growth provides high investment potential acquiring company in the future, giving a greater chance of using shares as a means of payment.Hypothesis 5. High capital costs, high investment opportunities of the acquiring company in the future, giving a greater chance of using shares as a means of payment.6 Hypothesis (the hypothesis of asymmetric information): a re-evaluation of the acquiring company, the chance of using the shares as a means of payment.7 Hypothesis (the hypothesis of the relative size of the deal): with the growth of the size of the acquired company compared with the buyer, the probability of the use of money as a means of payment.8 Hypothesis (the hypothesis of impact of the business cycle on the payment method)Choose method of payment: in a period of economic growth and in times of crisis, the post-crisis period is determined by a different set of factors.Hypothesis 9 (conformity hypothesis developed and developing markets): determinants of the method of payment, important for the developed countries would be meaningful and similar in character to the developing countries.Unfortunately, the hypothesis of the ownership structure of the acquiring company, it is not possible to consider this work as the information on the proportion of shareholders in the BRICS is revealed for the very small number of companies, and because of the lack of mnemonikov on the structure property for the Bloomberg BDP.Sample descriptionTo obtain the sample database has been used Bloomberg (Bloomberg), sectionM&A.The sample included mergers and acquisitions that meet the following criteria:1. official communication and transaction date of the merger or acquisition has been released since 01.01.2004 31.12.2013, This time period was due to equal distance from the year 2008 the year of the economic crisis. Thus, all mergers and acquisitions, announced prior to the 2008 year were logged with the dummy variable is zero, and the crisis after a dummy equal to one.2. Selling the company or company-purchaser are registered in one of the countries the BRICS/Great Britain and Germany3. payment method is defined, i.e. "cash", the "action"4. type of transaction: merger/acquisition company (Mergers&Acquisitions).5. the size of the acquired shares is not less than 80%; this criterion excludes transactions with minority shares.6. trade size of at least 10 million United States dollars; this criterion allows you to exclude a small deal.7. the transaction was successfully completed: from the excluded transactions that were not completedThe total number of mergers and acquisitions in the 2 regions that fall under these criteria, more than 10000 deals. Because of the limitations of the Terminal from Bloomberg on the number of hits per month, for a sample was selected only 2099 observations (980 observations for Europe and 1111 observations for BRICS)2.1. study model and description of variablesTo test the hypotheses mentioned above was built following a probit logit models of binary choice: In order to test the model was used by a number of variables, which are described in details below.The dependent variable is the method of payment: "0", "1", stocks, is money.As explanatory variables in the model, the following variables were used:· The ratio of free cash flow to the company's book value (FCF). · The share of assets in total assets of the company (TANG).· Debt Ratio (LEV).· Quick ratio (QUICK_RATIO).· The logarithm of the size of the company (SIZE).· Ratio of current assets to the carrying value of the assets of the acquiring company (CURASSETS).· Ratio of market value to book value of equity (QTac).· Dummy-variable that corresponds to what is a deal or not (InternationalCROSSBORDER).· Dummy-variable that corresponds to what is a deal or not (cross-INDUSTRY).· The average sales increase (SALESG).· Ratio of capital expenditures to the cost of the assets (APEX).· The relative size of the transactions (DEALSIZE).· Dummy-variable that corresponds to what was announced the deal in crisis and post-crisis year or not (theCRISIS).In the case of logit and probit regression coefficients are interpreted as a direct influence on the result variable, you cannot calculate the coefficient of determination (R2)-a measure which would explain the forces of regression. To focus, you must turn on the relevance and impact of ratios, and signs R2 replace the pseudo R2. Through the use of two dummy variables for the crisis and from the BRICS were built 4 models:Model for Europe before the crisisthe model for Europe in the crisis and post-crisis yearsa model for the BRICS to crisisa model for the BRICS in crisis and post-crisis yearsAs a result of testing built regression model were obtained the following results: Table 5Data sampling regression probit Germany and EnglandP (= CASH Payment)UK + GERMANYNO CRISIS (PROBIT)CRISIS (PROBIT)Coef.P > z(H)Coef.P > z(H)FCF13.583990.000+9.3455540.023+TANG-2.330650.000+-2.0162630.003+LEV-. 16773590.021--. 18323020.005-QUICK_RATIO-. 04822140.536+-13168.0.071+SIZE0655063.0.000+0310076.0.672+CURASSETS-. 12229530.357+-. 04562550.631+QTac-. 08231330.060-0005476.0.992-CROSSBORDER2392471.0.286+1.0258590.000+INDUSTRY5580819.0.021-4945883.0.033-SALESG-. 00578560.024--. 00634210.100-CAPEX-2.4986580.191--5.6531980.004-DEALSIZE-. 68068750.004--. 35420450.003-_cons3.5260420.000 3.0112470.000 R20.47050.3603(N)556424LL-90.231816-86.182204Source: author's calculationsTable 6The probit for BRICSP (= CASH Payment)BRICSNO CRISIS (PROBIT)CRISIS (PROBIT)Coef.P > z(H)Coef.P > z(H)FCF13.936060.000+17.519170.000+TANG-3.2871560.000+-2.0434840.002+LEV-. 25331910.000--. 20270790.002-QUICK_RATIO0098475.0.902+-. 02745430.714+SIZE0990332.0.000+0923823.0.000+CURASSETS-. 04396850.679+-. 13994060.387+QTac-. 1294830.003--. 10433740.011-CROSSBORDER9709988.0.000+9698608.0.000+INDUSTRY3687096.0068-2875757.0.193-SALESG-. 00383330.131--. 00702560.013-CAPEX-1.9168470.256-2.4501920.437-DEALSIZE-. 27802190.020--. 31677940.007-_cons3.8742710.000 2.6577180.000 R20.46080.4818(N)553558LL-113.26421-101.93637Source: author's calculationsIt is worth noting that regression is significant, the value of the pseudo-R2 ranges from 36% to 48%, which is good enough for the financial series.Interpretation of resultsHypothesis 1 hypothesis (availability of funds borrowed FCF, SIZE, LEV)-hypothesis is not rejected (at the 5% significance level).Important and positive factor in the variable FCF for the BRICS countries, Germany and the United Kingdom suggests that the more the acquiring company has cash and cash equivalents, the greater the probability of payment transactions in cash. This result confirms previous studies (Martin (1996), Zhang (2001), Di Giuli (2005). Positive coefficient factor SIZE turned out to be insignificant, only in conditions of crisis and post-crisis situations in Europe, in other cases, the increase in the size of the company, characterized by market capitalization will lead to a greater availability of funds for the acquiring company, which, in turn, would increase the likelihood of payment in cash. After the bankruptcy of Lehman brothers company size is no longer a guarantee of return of borrowed funds. Character and significance of the coefficient of the variable before the LEV coincided with expectations: factor is significant and has a negative influence on the probability of payment transactions in cash. The result is both for Europe and for the BRICs. Increase in debt burden really leads to difficulties in accessibility for the acquiring company money that motivates the buyer's company to pay for the deal. Hypothesis 2 (hypothesis of borrowing availability TANG)-the hypothesis is rejected (at the 1% level of significance).Variable coefficient of TANG was significant as the BRICS countries, and developed countries at the 1% level of significance, but the sign of the coefficient is not expected. It should be noted that when the effect of tangible assets on the level of financial leverage is proven by many works, the only work of Faccio 2006 confirmed this figure as a determinant of pay has a positive impact on cash payment. The negative influence of the above factors on the likelihood of payment transaction funds can be attributed to the high risk and complexity of integration companies in the industry that the shareholders of the company-buyer does not want to take on yourself and share with the shareholders of the company. Moreover, the complexity of the production might imply increased asymmetry information that incites the use of shares from buyers. Negative effect on the probability of payment by cash is not contrary to the more affordable credit, it is possible that a large proportion of materiel in advance brought the company to a higher financial lever, thereby reducing the availability of borrowed funds compared to smaller company shares and a smaller debt load. Hypothesis 3 (hypothesis of borrowing availability QUICK_RATIO, CURASSETS) is a hypothesis is rejected (at the 10% level of significance).The coefficient obtained with QUICK_ factorRATIOwas significant only in crisis and post-crisis periods in Britain and Germany, but the sign does not coincide with the expected. This fact suggests that the liquidity of the company is probably not limited to the use of as a method of payment. The sign factor, most likely can be attributed to the industrial structure, is not taken into account in this study. The variable CURASSETS was not significant, neither in Europe nor in the BRICS. Perhaps this does not affect the ability to limit the availability of funds. Hypothesis the hypothesis of investment opportunities (4 SALESG)-hypothesis is not rejected (at the 10% level of significance).A negative coefficient SALESG is meaningful and coincided with the expected sign always apart from the pre-crisis period in the BRICS. This indicates that the variable is in times of crisis is an indicator of investment opportunities, and against the background of the growth in a developing country growth does not mean the size of investment opportunities. 5 Hypothesis (the hypothesis of investment opportunities CAPEX) hypothesis is rejected (at the 5% significance level).Variable CAPEX was significant and negative, that has coincided with expectations only to crisis and post-crisis UK and Germany. The overall growth of the economy dictated the growth for companies in Europe, which deprived the sales growth and capital costs as an indicator of investment opportunities, but capital investment after 2008 years clearly demonstrate the growing company. In the case of sampling the BRICS, the capital cost of the acquiring company are not the factor influencing the probability of a particular method of payment because of tight need to fill fixed assets of the sector-specific (the dominance of industrial plants). 6 hypothesis (the hypothesis of asymmetric information)-hypothesis is not rejected (at the 10% level of significance).Negative and significant coefficient of QTac found in the BRICS and the United Kingdom and Germany in the pre-crisis period. The sign is the same as the expected impact. Insignificant influence of this variable is in crisis and post-crisis Europe, that can be explained by the fact that European players after the crisis did not choose a payment method for pereocenennosti of its shares. CROSSBORDER variable has a positive and significant impact on the probability of payment of funds in both countries and BRICS in crisis and post-crisis UK and Germany, because of the unwillingness of the shareholders of the target company payment in shares of foreign companies in international transactions. The exception is neznačimost′ the pre-crisis period in Europe, as the shares of European players in the favourable investment climate were also abroad. The variable INDUSTRY proved to be a significant and positive, that matches the expected sign influence. This factor is insignificant for countries in crisis and post-crisis BRIX periods, in conditions of high asymmetry of information in times of crisis and post-crisis years, even within the same industry was lack of information. 7 hypothesis (the hypothesis of the relative size of the deal)-hypothesis is not rejected (at the 5% significance level). Significant negative coefficient for the variable DEALSIZE allows to assert that the BRICS countries, Great Britain and Germany, the relative size of the deal is an important determinant of the method of payment. This result confirms the conclusions obtained previously in the works of G. Grullon (1997), Di Giuli (2008), where it is noted that the higher the relative size of the deal, the bigger share of the market capitalization of the acquiring company will have to pay for the company-the goal. Pay a lot of money is less preferred than payment transactions in stocks, because the money the company might not be in such numbers, as well as their removal may result in adverse consequences for the company. 8 Hypothesis (the hypothesis of the impact phase of the economic cycle) -hypothesis is not rejected (at the 10% significance level) as a sample of the BRICs, so on a sample of Germany and Great Britain. With regard to the impact of the crisis, the UK and Germany during the crisis were new meaningful variables QUICK_RATIO, CROSSBORDER, CAPEX, and significant SIZE variables and QTac have become insignificant. For developed countries, the crisis was associated with a fall in big companies, mainly, of Lehman Brothers, which affected the credibility of such factors as company size, perestavšemu guarantee refund. Pereocenennost′ shares, expressed in the ratio Q-Tobin, also ceased to be an indicator that the managers would have to decide on the method of payment for the transaction. In turn, the liquidity ratio during the crisis and its aftermath have meaning as characterize the company an opportunity to be sustainable and to pay their debts. International transactions also began to play an important role, because the stocks of companies from developed countries were quoted to crisis abroad, making this factor is insignificant, and with the onset of the crisis the attachment in the majority of shares and payment they are risky, making the factor meaningful. Capital expenditures during the period of growth of the economy are not an indicator of investment opportunities have become established in and after the crisis because the crisis in the ability of the company to invest in its fixed assets is evidence of its prosperous market. The BRICS countries, the situation is as follows: the variable SALESG, non-significant in the pre-crisis period, during the crisis and post-crisis period is, in turn, the significance of the INDUSTRY is the opposite. For developing countries, with the onset of the crisis, the fact that the deal was between sectors or within the industry, will affect the choice of method of payment, since in a crisis, and then in the post-crisis period the BRICS countries reached a high level of asymmetry of information that oŝutilas′ a severe lack of information even within the same industry. In turn, the sales growth before the crisis, in the context of the General growth of the economy is not a clear indicator of investment opportunities, therefore, is an insignificant factor in the crisis and to choose a method of payment. Hypothesis 9 (match determinants hypothesis the signs and significance of developed and emerging markets) -hypothesis is rejected (at the 10% significance level) as a sample of the pre-crisis period, on a sample of the crisis and post-crisis period.In the pre-crisis period difference significant determinants is that in Europe, significant, compared with the BRICS are SALESG, in turn, the BRICS countries-CROSSBORDER. The period before the crisis, the growth of sales in Europe has a meaningful impact in the countries of BRIC has, since sales growth against the background of overall growth in the economy, which is especially strong in developing countries, there can be no clear determinant of investment opportunities of the acquiring company. In turn, the deal has a value of internationality in the BRICS and into emergency preparedness Europe because the foreign company growth period agreed to in the company's shares as payment from developed countries. Crisis and post-crisis periods in Europe are ... different variables QUICK_RATIO, INDUSTRY, CAPEX, and in the countries of BRIC-SIZE and QTac. The BRICS countries in crisis and following it, even within the industry, there is a shortage and asymmetry of information, the liquidity ratio is not an indicator of the availability of funds in connection with a grain of salt to this indicator. In developing countries, the volume of capital expenditure is not a factor, which showed growth of the company, as the dominance of industrial plants to be tough filling. These facts explain the neznačimost′ factors and the importance for developing countries to developed countries. In turn, the Q-Tobin is not meaningful for developed countries, but is significant for developing because of the pereocenennost′ of shares to managers in developing countries is important when deciding on the choice of method of payment, unlike managers in developed countries. Because of the fall of the major corporations in Europe, managers and investors ' shaken confidence in the size of the company, which has not happened in the BRICS, that made the company the size factor significant in contrast to developed countries.Conclusions and practical applicationWere nominated, confirmed and rejected new hypotheses on the determinant method of payment transactions, mergers and acquisitions (hypothesis of stages of economic cycle and compliance of developed and developing countries). The practical significance of the study is that its conclusions about the significance of the determinant method of payment transactions, mergers and acquisitions can be useful to managers in choosing the method of payment. If the acquiring company is in a situation where the company generates a high free cash flow, has a larger market capitalization and is involved in a merger or takeover, the appropriate method of payment in the transaction will be paid in cash. If the company has a high relative size of the transaction, financial leverage high Q-Tobin, proportion of tangible assets, the debt burden and its growing sales, the more attractive for managers will pay for the transaction in shares. In turn, the characteristics of the transaction, if its relative size is high, then the managers would pay for the shares, and if a deal is cross-sectoral, or international funds.In addition, account should be taken of the fact that in a developed country in a time of crisis low Q-Tobin and the size of the company will not give a pretext to pay cash. In the same moment of crisis in the BRICS deal inside the industry does not mean preference for cash payment, and the high rate of sales growth of the company in the pre-crisis period does not imply payment of preferred shares.The main limitation of this study is that a significant number of transactions were excluded from consideration because of the lack of needed information. As the directions of further research can be considered:· study on the theory of the ownership structure of the sample of countries the BRICS and their comparison with the findings obtained in developed countries at a similar time interval,· testing the theory of tax shield on the BRICs, sample· using variables, adjusted to the middle tier in the theories,· use the characteristics of the target company as determinants of the payment. ConclusionThis study examined the role of payment method in mergers and acquisitions, outlined the basic payment methods, their advantages and disadvantages from the point of view of the target company shareholders and the acquirer company. A brief review of the market of mergers and acquisitions globally, in developing and developed countries. The present review has shown that as regions to study developing countries should assume the BRICS countries, while developed-Germany and the United Kingdom. Particular emphasis was placed on the ranking of countries in terms of transactions: it is allowed to make a choice of the most suitable for the analysis of developed and developing capital markets. The first chapter also reviewed the main directions of research of the method of payment transactions, mergers and takeovers: a study of the determinants and effects of the method of payment method of payment on the effectiveness.Particular emphasis was placed on the works on the determinants of the method of payment in developed countries and BRICS. The main determinants in these studies is the availability of financial resources, the investment opportunities of the acquiring company, the relative size of mergers and acquisitions, asymmetric information, stage of the economic cycle. Systematized methodology, the main theories that explain the choice of a method of payment on the basis of which the hypothesis were formulated in relation to determinants of the method of payment in both developed and developing countries.For market research, merger and acquisition transactions, BRICs, Germany and Britain put forward criteria for the selection of transactions on the basis of which the sample was established, with over 2000 transactions. Also identified variables needed for testing hypotheses put forward. On the basis of hypotheses was built regression model binary choice, explaining the choice of payment method in mergers and acquisitions. The test model were used for the statistics and regression analysis: logit and probit regression. The model was tested for robustness and multicollinearity. The analysis concluded that when choosing a payment method in mergers and acquisitions in developing countries, the following factors are relevant: the availability of borrowed money, the relative size of the deal, investment opportunities, asymmetry of information, both in developed and in developing countries. In addition, it has been proven that the determinants of method of payment transactions, mergers and acquisitions in developed and developing countries are different, and different stages of the business cycle have a different set of determinants of the method of payment transactions. However, comparison of the results between them showed that most of the factors relevant to the developed markets of the capital, are also relevant and emerging markets. The practical significance of this work is that the identified significant determinants will help economic agents, mainly managers of companies, in making the decisions that relate to the choice of payment method in mergers and acquisitions.

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