Focus, Asset Tangibility and Value Creation in M&A Transactions: Evidence from the Pharmaceutical Industry

Through mergers and acquisitions the pharmaceutical industry has changed in the last years like never before. The widespread paradigm that acquirers face negative returns at acquisition announcement, resulting in significant losses, no longer applies. Including the largest consolidation wave in 2013 to 2016, we find overarching highly positive returns for acquirers, targets and combined entities. With a differentiated analysis approach of categorizing events in specialization, diversification and R&D-driven acquisitions based on the acquirer and target's business model, we are able to assess intra-industry M&A success drivers holistically and from a completely new angle. Not only are we seeing specialization acquisitions from an acquirer perspective outperform the other two types by around 2%, but also targets in R&D-related acquisitions face an increase of roughly 50%, more than two times of the other groups' returns. Furthermore, the results highlight that acquirers earn the highest returns in asset deal transactions, while the sellers are worse off. Finally, we see the largest M&A wave in the industry ever since leads to positive and superior reactions of around 3%. In parallel, the tense market situation results in a paradigm shift not only for the affected M&A parties, but for the competitors as well. Where there was a parallel movement of the acquirers' and competitors' abnormal announcement returns in the early years of the millennium, there now is a shift in the opposite direction, meaning that good news for the acquirer now implies bad news for the competitor.