Profitability Analysis of Acquiring Companies

This study examines the profitability of acquiring firms in the pre- and post-merger periods. The sample consists of 153 listed merged companies. Five alternative measures of profitability were employed to study the impact of mergers on the profitability of acquiring firms. The results reveal that profitability declined in 55% of companies, and only 29% of companies could improve their profitability. DuPont analysis reveals that profitability declined due to poor asset utilization. It suggests that managers should give due attention to proper utilization of newly acquired assets. Acquisition of neither healthy nor loss-incurring units contributed to the profitability of acquirers.