Evaluation of the Effectiveness of Mergers and Acquisitions in Software Industry

We investigate the performance of mergers and acquisitions in the software industry. This industry has several economic features, including the presence of network effects. It is assumed that network effects enhance the synergetic effect of the takeovers. The focus on CAR analysis in previous studies ignores other potentially meaningful success measures. We obtained that financial indicators (EBITDA/Assets and EBITDA / Sales) improved by 0.03 after the deal, but changes were statistically insignificant. Using the event study methodology, we obtained significant CAAR equal to 6.4% for acquirers. Such results indicate that the same transaction is failed or successful, depending on the chosen method. Evaluating the impact of some characteristics of the transactions, we found that only the method of payment significantly affects the long – term performance. This research has theoretical importance, since it is the first comprehensive (for both short-run and long-run) study of M&A transactions in the software industry. The results indicate that several approaches should be used in evaluating M&A performance. The practical value is that investors can expect an increase in the share price of acquirers in the short-term. However, they should also consider the fact that the average financial performance of the firm does not improve in the long term.