Consolidation In The Electronic Design Automation Industry: An Empirical Analysis Of The Impact Of A High-tech Acquisition On Shareholder Wealth
The high-technology industry is characterised by a high volume of acquisitions, most of which are undertaken to tackle an industry-wide pressure to innovate. This study examines the acquisition of Verisity Ltd. by the global computational software company Cadence Design Systems Inc.. The paper uses event study methodology to determine whether this high-tech acquisition was value-creating for the companies involved. Previous literature on shareholder reactions to acquisition announcements commonly finds negative abnormal returns for acquirers and positive abnormal returns for targets. Industry-specific literature also finds acquisitions to be value-decreasing for acquirers in the high-tech industry. However, the results of this empirical analysis do not find significant negative abnormal returns for the acquirer, Cadence, in the short or long run. Further, the examination of abnormal returns in response to a post-acquisition product announcement by Cadence also yields insignificant results. The main implication of these results is that acquisitions are zero net present value projects for acquirers. On the contrary, positive and significant short-run abnormal returns are found for the target, Verisity, supporting previous literature that finds acquisition announcements to be beneficial to target shareholders.
- dissertation: complete research report
- calculation_file: event study calculations and result tables