Corporate reputation in mergers and acquisitions

Abstract

The purpose of this master thesis is to uncover the role of corporate reputation as an intangible asset towards a sustainable competitive advantage in mergers and acquisitions. Identifying corporate reputation as an individual asset that generate future economic benefits, can provide as a basis of including corporate reputation in financial balance sheets and due diligence. If corporate reputation contributes with long-term financial and non-financial benefits, inquiring into corporate reputation as a vital source of a sustainable competitive advantage might be beneficial for both parties in a merger/acquisition.

The thesis is conducted by a qualitative “multicase” study, where two merger/acquisition deals serves as illustrative examples of current merger/acquisition practice regarding transfer and management of intangibles and corporate reputation. The merger/acquisition between Hewlett-Packard and Opsware Inc. and the merger/acquisition between Dell Inc. and Perot Systems represent the two M&A deals. The chosen design reflect the contextual nature of this thesis, as well as it is possible to build upon existing theory. Two analytical sources were chosen in order to examine the role of reputation in current practice and theory in the two M&A deals. Respectively, required merger/acquisition documentation by the federal authorities, and the price paid for the acquired company. These variables provides behavior-related information of the companies, perspectives expressed by the companies as well as financial information concerning the company’s health, valuation of assets and pricing techniques. Theoretical background serves as a secondary source of information in this thesis, supplementing the empirical research, especially in the search of uncovering the role of corporate reputation, and the possibilities for measuring and valuing this asset.

The analyses indicate that corporate reputation is overlooked as a valuable intangible resource in mergers and acquisitions. Although the chosen illustrative companies describe reputation as a critical source of financial revenue and increased competitive abilities, it is not included in any financial balance sheets or the companies merger/acquisition documentation regarding management. Furthermore, the intangible asset is not present in the price paid for the acquired company, nor is it represented in the annual report as a separate asset.

My research of corporate reputation in mergers and acquisitions contributes to the field of strategy and business, more precisely mergers and acquisitions, in several ways. First, it suggests new theoretical perspectives. Secondly, the thesis provides a framework as to how to include reputation in mergers and acquisitions. Third, it uncovers the ambiguous relationship between what the company disclose as important, and what actions actually reflect. Fourth, it is suggested that attributing attention to corporate reputation will enhance future, and long-term financial revenue. Fifth, and last, it is suggested that the calculated price of target companies, will be more accurately when an assessment of corporate reputation is included, thus having an influence on the decision to merge or not, as well as the agreed upon price.