Impact of Acquisitions on

Performance of Canadian Firms

Igor Semenenko
Acadia University
October 17, 2013
 Motivation
• Canadian’s productivity has been tanking since
early 1970s. Worker output in U.S. is $44 per hour
per worker vs $35 in Canada
• Gap widened in the last 15 years
• Tim Hortons fails in New England
• Fortress mentality and stiff-upper-lip British
heritage, eh?
• Or, maybe, competitive effects (lower competition
among Canadian companies and safety net)
 Hypotheses
• Can acquisitions in the U.S. help bridge that
gap?
• Natural experiment
• Two outcomes:
- value destruction
- technology transfer
 Sample
• 907 companies with assets > 100 mln from
Compustat in 1991-2010
907 firms in total

Non-acquiring firms Acquiring firms

411 496

Acquisitions in 3 areas: U.S.A. Canada Other

217 406 167
 Models
• Dependent variables:
- Return on Equity
- Equity Economic Value Added =
= Net Income – Equity x Required Rate of Return
- Growth in sales
• Tested variable:
- Dummy variable = 1 in Y0 - Y5 after acquisition
- Size variable = percentage of assets in 3
jurisdictions on a 5-year rolling basis
• High Tech dummy
 Main Results
• Acquisitions in U.S. have negative impact on
growth; large acquisitions in U.S. have
negative impact on ROE and EVA
• Acquisitions in Canada lower growth
• Acquisitions in other geographies have no
impact
• High Tech acquisitions lower growth in all 3
geographies
• There is no technology transfer effect
 Digging Beneath the Surface
• Changes by 5-year periods
• Acquirers are more profitable, larger in size,
operating in more concentrated industries
• 20 percent of acquisitions in US and Other
jurisdictions are High Tech, only 10 percent in
Canada
• Size of acquisitions is the same in 3 areas
 Propensity Score Match
• Acquirors are faster growing, less levered
firms
• When matched with firms from non-acquiring
subsample, growth impact disappears
• Impact on other metrics – ROE and EVA –
becomes even stronger
 Conclusion
• Value destruction, not technology transfer
effect
• M&As are not a technology transfer channel
• Tapping into managerial talent pool in U.S.
could do it. Topic of another study