MSc Defence

Michael Couturier29.11.2016i508454

Who matters more in M&A? How does executive functional background impact management turnover and M&A performance?

Agenda

• Motivation• Relevance & Hypotheses• Research Design & Data collection• Findings• Limitations

Motivation

• Professional involvement in Michelin acquistion 2014 /2015

• Transition team was hit hard by key personell leaving from target firm

• The departure directly complicated and intensified my personal work load

• Interest in the academical view on top managment teams (TMT) and M&A

performance was formed

...

conceptual modelliterature review

Relevance• popularity of M&A / high failure rates of

M&A

• managerial turnover has been shown to negatively affect post M&A performance

- Walsh | Finkelstein | Bergh

• (functional) TMT Studies in other contexts- Relevant research field around the idea that people posess

valuable, intangible knowledge|RBV-Theory |Upper Echelon | Hambrick & Mason etc.

• Bermiss & Murmann (2015) present large sample study on functional TMT and firm performance

- Findings: The loss of some specific functions matters more than others to performance.

- Losing managers that govern internal firm routines impacts performance more than others -> Relevance in M&A context?

The firm and its (human) sources of

success [TMT research]

M&A [turnover] research

conceptual model

Hypotheses - Bringing a subfield of TMT research into M&A context:

Research Gap:Limited amount of research on functional TMT in

context of management turnover related to M&A-(red dotted line in model)

Functional TMT

research

Hypotheses

H1:

•There is a negative relationship between managerial turnover and post-acquisition survival.

H2a:

•The negative relationship between turnover and acquisition survival will be larger when turnover consists predominantly of internally orientated managers

H2b:

•The negative relationship between turnover and performance will be even greater, the larger the overall internal brain drain

Total top executive turnover M&A Performance / survival

Top executive functional background

H1

H2a (-)

(-)

Number of internally focused executivesamong departures

Ratio of internally focused leaving overall

H2b(-)

Agenda

• Motivation• Relevance & Hypotheses• Research Design & Data collection• Findings• Limitations

Research Design

The dependent variable is acquisition survival [retention or divestment of the acquired firm after a period of four years]

The main independent variable is managerial turnover. [represents the delta of executives that have left the company four years after

the announcement.]

Sample: 193 US –based acquisitions that occurred between 1992 and 2010

- Thomson Reuters SDC Platinum Database (SDC)- Standard & Poor’s administered ExecuComp- US Securities and Exchange Commission (SEC)

Research Design

The dependent variable is acquisition survival [retention or divestment of the acquired firm after a period of four years]

The main independent variable is managerial turnover. [represents the delta of executives that have left the company four years after

the announcement]

Sample: 193 US –based acquisitions that occurred between 1992 and 2010

- Thomson Reuters SDC Platinum Database (SDC)- Standard & Poor’s administered ExecuComp- US Securities and Exchange Commission (SEC)

M&A extraction

+Top management team info on

individual level

+functional clustering

(internal, external, misc.)

Multivariate regressions

Agenda

• Motivation• Relevance & Hypotheses• Research Design & Data collection• Findings• Limitations

Findings

H1:

•There is a negative relationship between managerial turnover and post-acquisition survival.

H2a:

•The negative relationship between turnover and acquisition survival will be larger when turnover consists predominantly of internally orientated managers

H2b:

•The negative relationship between turnover and performance will be even greater, the larger the overall internal brain drain

Total top executive turnover M&A Performance / survival

Top executive functional background

H1

H2a (-)

(-)

Number of internally focused executivesamong departures

Ratio of internally focused leaving overall

H2b(-)

[-2,289 | p < 0,05]. [-,399 | p < 0,05].

Implications

• Overall brain drain of internally focussed executives

matters – not just their share in general turnover

• On top previous findings could be confirmed (seniority

matters) and deal value as a predictor of survival had

not been mentioned in the literature

Overall an advancement for the study of TMT in a M&A context.

Limitations

• Focus on large public firms from US

• Data on TMT members - ExecuComp limited to top 5 positions- retention, but into less visible (not SEC listed) positions

• control for general turnover rates

time for questions