A decision model of corporate expansion via M&A

Abstract

The primary aim of this thesis is to establish an analytical model of investment decision for efficient corporate mergers and acquisitions (“M&A”), this research aims to study the key drivers and success factors for corporate growth via M&A. It is hypothesised that the investment decisions made in efficient corporate M&A are determined by the variables of unit cost of investment (as a function of purchase price and benefits gained), cost of financing and associated risks and cost of integration and associated risks. Each variable is hypothesised to be a necessary but insufficient cause of the M&A investment decision in and of itself; collectively, however, the three variables interact in such a way that yields a necessary and sufficient cause of the ultimate investment decision for M&A. The study examines the hypothesised relations within the context of a horizontal expansion M&A scenario in the Chinese banking industry involving the entities of United Commercial Bank and Business Development Bank, and a vertical expansion M&A scenario in the Australian mining industry involving Sinosteel Corporation and Midwest Corporation. These two case analyses aim to validate the proposition and hypotheses of the decision to expand externally for corporate via M&A. The results of the analyses performed in this research are consistent with the hypothesised relations. Evidence in support of the validity of the hypothesised M&A decision model has been found in this research by means of case analysis involving two different M&A events. The model acts as an integrated decision support tool for corporate looking to expand externally and efficiently through M&A.