Value Creation through Mergers and Acquisitions: A Case Study of the AF Group

Abstract

This thesis is a study of five acquisitions undertaken by the AF Group (AF) between 2000 and 2010, seeking to determine if and how the acquisitions have created for AF. This thesis also investigates the use of earlier acquisition experiences in focal acquisitions within AF at an organizational and individual level. In addition, it seeks to identify drivers for value creation or destruction. This thesis employs three research methods, namely an event study, an accounting study and a clinical study. The event study measure the value created reflected by abnormal returns. The accounting study assesses the financial performance of acquired firms in the pre- and post-acquisition period covering 10 years altogether. The clinical study is a comprehensive study of all acquisitions and consists of findings obtained from interviews of persons that were involved in the acquisition processes. On the basis the three research methods combined, I found that the acquisition of Graveservice and Brødrene Glomsrød have created value for AF. The acquisition of Mollier has created value to a smaller extent. The acquisitions of Aeron and Johan Rognerud have not created value for AF so far.AF`s approach to M&As has changed during the last twelve years by increasing the total time spent on acquisition processes. AF has managed to build M&A capabilities both on an organizational and individual level. However, past acquisition experiences have been used to a smaller extent in focal acquisitions until 2010, especially with regard to acquisitions undertaken across AF`s business areas. Using earn-outs as a part of the payment can be considered to be both a driver for value creation and destruction. By setting an upper limit on the earn-out is a driver for value creation. Similarly, by exposing the seller to the risk of paying back some of the up-front payment through the earn-out mechanism is a driver for value creation. Earn-outs that restrict the level of control in the target are a driver for value destruction. Having managerial resources that can be allocated to a target during the integration is a driver for value creation. The use of an integration plan, if focused on the right aspects, is a driver for value creation. Buying firms that have a different business culture compared to the bidder is a driver for value destruction. Another driver for value creation is to focus more on overall factors such as organization and management rather than factors closely linked to daily operations at an early stage of integration.