Long-term Performance of German M&A Using Forward-looking Performance Measures

We examine the long-term performance of mergers and acquisitions (M&A) of German acquirer companies using a performance measure (future potential) that considers both past-oriented performance and shareholder expectations to address the discussion of one-dimensional performance measures in the academic literature. Our findings indicate that, prior to the acquisition announcement, acquirers’ future potentials (FP) significantly underperform relative to the median peer in their industry. However, post-acquisition, acquirers’ FP experience a substantial increase. Both raw performance and industry-adjusted FPs show significant improvement following the acquisition, supporting the presence of synergies that have yet to be fully realized. Using multiple regression to validate the differences in FP, we identify several transaction and company characteristics that affect the performance variable. Our results suggest that a considerable proportion of FP is achieved through M&A, highlighting the importance of the acquirer's ability to realize the anticipated potential for future operating performance.