Evaluating the impact of mergers and acquisitions on company value in the IT industry

Abstract

This study examines the impact of the merger between Daum and Kakao on the value of IT companies in the industry. First, we conducted an event study using the market model and reasoned out market expectations. Second, we used mergers and acquisition (M&A) motivation theories and garnered options from industry experts’ derive expected effects. We then compared the expected affects and market expectations with the actual business strategy for the year following the merger to evaluate its impacts. The empirical results suggest that the merger of Daum-Kakao has had positive effects on company value itself. However, the merger did put attention on its Online to Offline (O2O) services and mobile platform businesses

thus there is no great advantage from Daum’s strengths and its position in the overall IT sector is compromised. The IT industry has a rapid technology development pace and M&A is common form for the external growth. Thus it is meaningful to examine potential advantages for a newly-merged firm from the merger in a short-term.