The Effect of the Organization's Life Cycle Stage on the M&A Deals' Performance for Developed Market Acquiring Companies

Dispute raged, and still rages today, about whether M&A deals create value for bidding companies’ shareholders. Surprisingly, there appears to be a black spot in the research as few studies explored the effect of corporate life cycle (LCO) on M&A performance and, notably, there is no investigation of LCO impact on M&A performance drivers. Indeed, LCO stage may indirectly affect M&A performance as firm financial and non-financial features (like, strategy, operating model, organizational structure) substantially changes over LCO stages. Using Antony and Ramesh approach to identify LCO stages and event study methodology on a sample of 375 domestic M&A deals initiated by developed European market bidders over 2012-2016, we examine whether returns differ by LCO stages and whether M&A performance determinants vary depending on the acquirer LCO stage. Overall, our findings show that mature and decline acquirers perform systematically better than growth ones. On average, growth bidder returns are positive but insignificant. In sharp contrast, our results suggest that M&A deals are value-creative for mature and decline acquirers. We also perform comparative analysis of abnormal returns, establishing that growth bidders do better in stock paid and related deals while mature and decline companies gains are significantly higher in unrelated transactions. We further conduct the regression analysis and reveal that whilst differentiating acquirers by LCO stages, M&A performance determinants differ markedly over stages. Notably, not only a set of dominant factors is unique for each stage, but also the relationship for the same factors dramatically differs. We perform several robustness checks that confirm results reliability.