Companies engage in mergers and acquisitions for multiple reasons, most commonly cited reasons being cost reduction, gains from synergies, increased competitive edge, low operating costs, diversification and so on.
Firms enter into a cross border M&A deal with a strategic perspecitve to either gain access to resources at lower costs or to increase their market share and expand their customer base or a combination of both (Hopkins, 2008). A firm can also enter into M&A deal due to macro factors such as globalization, market deregulation and so on (Mensah, 2011). As observed by the researchers, the characteristics of target firms that induces potential acquirors are smaller size, effective management team, low debt and profitability (Moeller, Schlingemann , & Stulz, 2004). When it comes to inducing activists, they choose target companies that demonstrates strong upside stock potential, low monitoring costs, and sufficient liquidity for timely exit (Boyson & Mooradian , 2011). They undertake strategic actions required to improve the performance of targeted firms, thereby making it a potential candidate for bidder companies.
Not only the performance of M&A but also the performance of activists in M&A can be tested with relation to the firm characteristics.