Evaluating the Effectiveness of M&A Deals in Cyclical Industries in the Case of Metallurgical Industry

Mergers and acquisitions (M&A) deals are one of the ways of developing business, and it has gained special popularity in recent decades. The volume of the largest deals are counted by tens of billions of dollars, and the news about them provide significant newsbreaks. Ferrous metallurgy is a typical representative of the cyclical industry. Moreover, it serves as the basis for many spheres of industrial production such as construction and mechanical engineering. The generalization of these two facts is the reason for the relevance of the study of the effectiveness of mergers and acquisitions in the ferrous metallurgy industry, which is carried out in the paper. The event study method, based on the analysis of the returns of shares of acquiring companies, is used to achieve the goal. Based on previous papers, three methods of calculating normal profitability and four different event windows have been selected, so in total 12 variations of calculation of abnormal returns (AR) were derived. A sample of 287 M&A deals was used for performing the analysis. The second method used in the paper was regression analysis. The purpose of using the method was to identify factors that affect the value of abnormal returns. Previously obtained cumulative abnormal returns (CAR) were taken as a dependent variable. As a result of implementing the event study analysis, 11 of the 12 cumulative abnormal returns, averaged over all observations (CAAR), were positive, ranging from 0.71% to 1.33%. At the same time, during the regression analysis, the following facts were revealed: • The volume of the transaction has a positive impact on the amount of cumulative abnormal returns • Transactions, which take place within one country, show greater cumulative return than cross-border transactions. Thus, mergers and acquisitions in the ferrous metallurgy industry are effective from the acquiring companies’ point of view.