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An Empirical Study on M&A Performance of Luxury Industry
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An Empirical Study on M&A Performance of Luxury Industry Based on EVA 1
Introduction 9
Chapter 1 Literature Review 11
1.1 The concept of mergers and acquisitions 11
1.2 Six M&A waves 11
1.3 Classification of M&A 13
1.4 Luxury goods and luxury industry 15
1.5 Research on M&A motives, measurement and performance 19
1.5.1 Theories of M&A Motives 19
1.5.2 Research on M&A Performance Measurement Methods 22
1.5.3 Research on the influencing factors 23
Chapter 2 Empirical Analysis of M&A Performance Based on EVA 26
2.1 Hypotheses Statement 26
2.2 Principle of M&A performance evaluation using EVA 28
2.3 Data and sample 30
2.4 Adjusted EVA calculation 33
2.4.1 Accounting adjustment for NOPAT and capital employed 34
2.4.2 Capital employed calculation 35
2.4.3 WACC calculation 35
2.4.4 Adjusted EVA calculation result 36
2.4.5 Performance change trend analysis 37
2.5 Empirical analysis 40
2.5.1 Research methodology 40
2.5.2 Variable Definitions 41
2.5.3 Variable correlation test 42
2.5.4 Regression model results 42
2.6 Sub-sample analysis 45
2.7 Main findings and discussion 47
2.8 Managerial implications 47
2.9 Limitations and Recommendations 48
Conclusion 50
References 52
Appendices 55
Appendix 1 Zephyr filter criteria 55
Appendix 2 Adjusted NOPAT calculation result for example 55
Appendix 3 Adjusted NOPAT calculation result 56
Appendix 4 WACC result for all samples 57
Introduction 9
Chapter 1 Literature Review 11
1.1 The concept of mergers and acquisitions 11
1.2 Six M&A waves 11
1.3 Classification of M&A 13
1.4 Luxury goods and luxury industry 15
1.5 Research on M&A motives, measurement and performance 19
1.5.1 Theories of M&A Motives 19
1.5.2 Research on M&A Performance Measurement Methods 22
1.5.3 Research on the influencing factors 23
Chapter 2 Empirical Analysis of M&A Performance Based on EVA 26
2.1 Hypotheses Statement 26
2.2 Principle of M&A performance evaluation using EVA 28
2.3 Data and sample 30
2.4 Adjusted EVA calculation 33
2.4.1 Accounting adjustment for NOPAT and capital employed 34
2.4.2 Capital employed calculation 35
2.4.3 WACC calculation 35
2.4.4 Adjusted EVA calculation result 36
2.4.5 Performance change trend analysis 37
2.5 Empirical analysis 40
2.5.1 Research methodology 40
2.5.2 Variable Definitions 41
2.5.3 Variable correlation test 42
2.5.4 Regression model results 42
2.6 Sub-sample analysis 45
2.7 Main findings and discussion 47
2.8 Managerial implications 47
2.9 Limitations and Recommendations 48
Conclusion 50
References 52
Appendices 55
Appendix 1 Zephyr filter criteria 55
Appendix 2 Adjusted NOPAT calculation result for example 55
Appendix 3 Adjusted NOPAT calculation result 56
Appendix 4 WACC result for all samples 57
The essence of M&A is to acquire the assets, equity, control or management rights of other enterprises through cash transactions, stock transactions, etc., which makes one enterprise gain the right to dominate another enterprise. M&A allows companies to take advantage of their own favorable conditions, such as brand value, market size, capital, corporate culture, etc., so that stock assets can be converted into incremental assets and capital appreciation can be achieved.
The actual birth of the luxury industry far predates its M&A development. In the 18th century, most of the luxury brands were small-scale production owned by families, and most of the brand owners were designers or artisans who made the products back to that time. The real boom in the luxury industry actually came after the Second World War, when various high-end brands such as Dior, YSL, Givenchy, etc. emerged. The golden period of the merger wave in the luxury industry started around 1980s, when conglomerates gradually emerged to replace family operations. This, coupled with the fact that "luxury" is a relative concept and there is no classification of the luxury industry in any database, makes it more difficult to study the industry as a whole, so most scholars focus only on case studies. Overall, the research on M&A in luxury industry is far behind other industries that emerged in the same time period, and the number of related studies is much smaller.
Moreover, in recent years, the scale of transactions of personal luxury goods (PLG) companies has further expanded, such as LVMH acquired Bulgari SpA, an Italian jewelry brand for 5.2 billion dollars in 2011 and acquired Tiffany & Co., an U.S. jewelry brand in2021 for 16.2billion dollars , both became the largest transaction of the decade at that time (Roberts, 2011). But do these high-value M&As in luxury industry really bring sufficient returns to the acquirer?
Therefore, the main questions to be answered in this thesis are: What impact does merger and acquisition have on luxury industry acquirers? What factors will affect the post-merger performance of luxury industry acquirers? How to adjust EVA? What is the relationship between EVA indicators and other performance indicators?
To sum up, the goal of this thesis is to investigate the impact of mergers and acquisitions on the performance of acquirers in the luxury industry by developing an EVA evaluation system and to identify the factors that influence post-merger performance.
In order to achieve the research goal, several objectives are set:
• Study the M&A related theories, especially these theories related to the characteristics of M&A in the luxury goods industry
• Review latest research on M&A performance, M&A performance influencing factors
• According to the content of the literature review, formulate hypotheses, establish methodology and models
• Determine the sample and collect data
• Run the regression model and give the result
• Give practical suggestions based on the results obtained
Zephyr, Thomson Reuters Eikon database, Statista and financial reports of the companies are used as the data source to examine the change of acquirer's M&A performance, and the time period for analysis is one year before the deal to the third year after the deal. So, the completion of M&A cannot be later than December 31, 2017. And after the economic crisis in 2007-2008, a change from crisis to recovery to new normal was formed in the luxury industry, which can provide a reference for the recovery of the luxury industry after COVID-19. Therefore, this thesis screens for M&A transactions in the luxury industry that were completed between January 1, 2008 and December 31, 2017.
The first part of the thesis is the literature review, which focuses on the theory of M&A, its development and performance, motivations, influencing factors and research methods. The second part is an empirical analysis of the screened 39 luxury industry M&A deals that occurred during 2008-2017, based on the EVA system to analyze their M&A performance. The non-parametric Wilcoxon signed-rank test is used to analyze the pre- and post-merger changes, and multiple linear regression is used to investigate the factors affecting the change in performance. Finally, managerial application and limitations and suggestions for future research are presented.
The actual birth of the luxury industry far predates its M&A development. In the 18th century, most of the luxury brands were small-scale production owned by families, and most of the brand owners were designers or artisans who made the products back to that time. The real boom in the luxury industry actually came after the Second World War, when various high-end brands such as Dior, YSL, Givenchy, etc. emerged. The golden period of the merger wave in the luxury industry started around 1980s, when conglomerates gradually emerged to replace family operations. This, coupled with the fact that "luxury" is a relative concept and there is no classification of the luxury industry in any database, makes it more difficult to study the industry as a whole, so most scholars focus only on case studies. Overall, the research on M&A in luxury industry is far behind other industries that emerged in the same time period, and the number of related studies is much smaller.
Moreover, in recent years, the scale of transactions of personal luxury goods (PLG) companies has further expanded, such as LVMH acquired Bulgari SpA, an Italian jewelry brand for 5.2 billion dollars in 2011 and acquired Tiffany & Co., an U.S. jewelry brand in2021 for 16.2billion dollars , both became the largest transaction of the decade at that time (Roberts, 2011). But do these high-value M&As in luxury industry really bring sufficient returns to the acquirer?
Therefore, the main questions to be answered in this thesis are: What impact does merger and acquisition have on luxury industry acquirers? What factors will affect the post-merger performance of luxury industry acquirers? How to adjust EVA? What is the relationship between EVA indicators and other performance indicators?
To sum up, the goal of this thesis is to investigate the impact of mergers and acquisitions on the performance of acquirers in the luxury industry by developing an EVA evaluation system and to identify the factors that influence post-merger performance.
In order to achieve the research goal, several objectives are set:
• Study the M&A related theories, especially these theories related to the characteristics of M&A in the luxury goods industry
• Review latest research on M&A performance, M&A performance influencing factors
• According to the content of the literature review, formulate hypotheses, establish methodology and models
• Determine the sample and collect data
• Run the regression model and give the result
• Give practical suggestions based on the results obtained
Zephyr, Thomson Reuters Eikon database, Statista and financial reports of the companies are used as the data source to examine the change of acquirer's M&A performance, and the time period for analysis is one year before the deal to the third year after the deal. So, the completion of M&A cannot be later than December 31, 2017. And after the economic crisis in 2007-2008, a change from crisis to recovery to new normal was formed in the luxury industry, which can provide a reference for the recovery of the luxury industry after COVID-19. Therefore, this thesis screens for M&A transactions in the luxury industry that were completed between January 1, 2008 and December 31, 2017.
The first part of the thesis is the literature review, which focuses on the theory of M&A, its development and performance, motivations, influencing factors and research methods. The second part is an empirical analysis of the screened 39 luxury industry M&A deals that occurred during 2008-2017, based on the EVA system to analyze their M&A performance. The non-parametric Wilcoxon signed-rank test is used to analyze the pre- and post-merger changes, and multiple linear regression is used to investigate the factors affecting the change in performance. Finally, managerial application and limitations and suggestions for future research are presented.
Investigating the impact of M&A on the performance of acquirer firms in the luxury industry is the main question that this thesis attempts to answer. In order to answer this question, the author conducts a detailed study on the theory of M&A, the influencing factors of M&A, the motivation of M&A, and the research methodology of M&A. With the help of the existing literature, the author identifies several factors that may have an impact on the post-merger performance of the luxury industry. The influencing factors are divided into two main aspects: firm characteristics and transaction characteristics.
Based on the literature review, the authors propose the main hypotheses of this study and validate the impact of M&A events on the performance of acquirer firms in the luxury industry and the factors that influence post-merger firm performance, respectively. The authors collected 39 luxury industry M&A transactions that occurred between 2008 and 2017 for an empirical study and established a multiple linear regression model, using characteristics such as the Goodwill-to-Total-Assets Ratio (acquirer), the Book-to- Market ratio(acquirer), the Debt-to-Equity Ratio(acquirer), the age(target), the transaction method as independent variables to examine the effects of the above independent variables on post-merger performance.
From the results of Wilcoxon test, it can be seen that the long-term effect of M&A on luxury industry is significant and positive. However, due to the sample size of this thesis, the short-term performance of the luxury industry cannot be effectively verified. In the attribution analysis, considering the specificity of the luxury industry, the author mainly selects the influencing factors through goodwill, market reaction and riskiness. In the empirical results, goodwill to total assets ratio and acquirer's age are positively related to post-merger performance, while the book to market ratio, D/E ratio, and cash payment is negatively related to post-merger performance. After several iterations, the five factors selected in this thesis were found to be statistically significant.
In the luxury industry, there is a clear first echelon of conglomerates, mainly LVMH, Kering and Richemont, and in order to investigate the specificity of conglomerates, the author conducted another analysis including only conglomerates (€10 billion of market capitalization as the criterion) in the sub-sample. The empirical results for the sub¬sample demonstrate that the effects of goodwill and leverage are more pronounced in the sub-sample than in the full sample. The goodwill to asset ratio has a much higher positive impact on post-merger performance and higher leverage has a higher negative impact on post-merger performance.
To conclude, the findings of this thesis conclusively demonstrate positive post¬merger changes in the overall performance of the luxury industry and the main factors influencing M&A in this industry. At the same time, the time period explored in this thesis, which began with the 2008 economic crisis, has always shown a positive recovery trend in the industry, and M&A has brought positive performance changes in the industry, suggesting that luxury acquirers can still draw on the post-2008 economic crisis experience for their M&A activities even after the COVID-19 pandemic.
Based on the literature review, the authors propose the main hypotheses of this study and validate the impact of M&A events on the performance of acquirer firms in the luxury industry and the factors that influence post-merger firm performance, respectively. The authors collected 39 luxury industry M&A transactions that occurred between 2008 and 2017 for an empirical study and established a multiple linear regression model, using characteristics such as the Goodwill-to-Total-Assets Ratio (acquirer), the Book-to- Market ratio(acquirer), the Debt-to-Equity Ratio(acquirer), the age(target), the transaction method as independent variables to examine the effects of the above independent variables on post-merger performance.
From the results of Wilcoxon test, it can be seen that the long-term effect of M&A on luxury industry is significant and positive. However, due to the sample size of this thesis, the short-term performance of the luxury industry cannot be effectively verified. In the attribution analysis, considering the specificity of the luxury industry, the author mainly selects the influencing factors through goodwill, market reaction and riskiness. In the empirical results, goodwill to total assets ratio and acquirer's age are positively related to post-merger performance, while the book to market ratio, D/E ratio, and cash payment is negatively related to post-merger performance. After several iterations, the five factors selected in this thesis were found to be statistically significant.
In the luxury industry, there is a clear first echelon of conglomerates, mainly LVMH, Kering and Richemont, and in order to investigate the specificity of conglomerates, the author conducted another analysis including only conglomerates (€10 billion of market capitalization as the criterion) in the sub-sample. The empirical results for the sub¬sample demonstrate that the effects of goodwill and leverage are more pronounced in the sub-sample than in the full sample. The goodwill to asset ratio has a much higher positive impact on post-merger performance and higher leverage has a higher negative impact on post-merger performance.
To conclude, the findings of this thesis conclusively demonstrate positive post¬merger changes in the overall performance of the luxury industry and the main factors influencing M&A in this industry. At the same time, the time period explored in this thesis, which began with the 2008 economic crisis, has always shown a positive recovery trend in the industry, and M&A has brought positive performance changes in the industry, suggesting that luxury acquirers can still draw on the post-2008 economic crisis experience for their M&A activities even after the COVID-19 pandemic.