M&A Performance When Founders Remain in the Firms

Can acquiring founding firms bring higher value than acquiring non-founding firms? What do founders make difference to firm value in M&A? This paper explores the impact of target founding firm and founders on acquirers' M&A performance. In line with Q theory of merger, I use the difference between acquirer's Tobin's Q one year after completion and one year before announcement to proxy for M&A performance. The research emphasizes on active founders before M&A and founders remain in the firm after M&A. My results show that target founding firm has negative impact on M&A performance, while remaining founders have positive influence on M&A performance. It shows that target founding firm has higher Tobin's Q of one year before announcement than non-founding firm, but brings lower acquirer's Q difference. Those founding firms with founders remain have highest Q before M&A among all target founding firm and non-founding firm. It implies that founders remain in the firms good. The findings discover that acquiring founding firms with founders remain perform better than acquiring other founding firm, especially when founders remain as daily-involved executives. Further, it conveys that firm value may decrease if founders don't remain no matter the problems from either firms or founders. Even though target founding firms have higher Q than non-founding firms, it may not produce higher Q for the acquirers as expected. It reflects that it would be harder to transfer synergies from target founding firms to acquirers than target non-founding firms. The findings are also in consistent with high Q-buy-low Q merger theory only except for the group of target founding firms with founders remain as daily-executive