International Journal of Hospitality Management Mergers and acquisitions and firm growth: Investigating restaurant firms Abstract

Merger and acquisition (M&A) has been viewed as an efficient strategy for firm growth . Using financial data from 1980 to 2007, this study analyzed the sales growth of restaurant firms up to five years after an M&A . The results suggested that the effect of M&A on firm growth continued even in the years following M&A execution, but the effects disappeared two or three years after M&A.

Introduction
There are two types of firm growth strategies: internal (organic) and external (M&A) . Internal growth (organic growth) means that firm growth is realized through the firms own strengths and resources. External growth (growth through M&A) signifies a strategy that is achieved by buying another firm or business. M&A has been increasingly used in the restau rant industry. There were 78 M&As of restaurant firms in 2003 and 112 in 2007.

Motivation for The Researcher to Conduct the Study

Prior M&A studies focused on investment returns to examine changes in shareholder value. These studies used Event Window Approach. Hence, their results were too limited to fully understand the various effects of M&A on firm performance and before this study little research has focused on firm growth. So the researcher got motivated to fill this research gap by conducting this study. And to conduct this study by using more general methods.

Objective and Significance of the Study

Objective of this study was to investigate the effects of M&A on firm growth in comparison with non-M&A firms. This study is useful for firms considering M&A and outcomes of study contributes to both industry and academic discussions and literature.

Literature Review
The researcher has studied many research papers regarding the: Effects of M&A Post-M&A integration Firm size effect on post-M&A firm growth Effects of M&A:

Event studies using a short term window reflect only stock market expectations for the event so it maynot accurately capture the economic impacts of M&A. Post-M&A integration: Post M&A is a time consuming process. There may be difficulties in integrating the acquired firm into the acquiring firm. Cost of M&A can dominate the benefits of M&A. Firm size effect on post-M&A firm growth: Past studies have shown a negative relationship between firm size and firm growth and the negative relationship is not linear Methodology Data: The data used in this study was collected from the COMPUSTAT and the SDC platinum using SIC 5812 (eating places). Data covers 28 years (1980-2007). This study used net sales growth to gauge firm growth. 347 U.S restaurant firms were analyzed as sample and 714 M&A cases were identified for analysis. Sample firms were selected only if they survived at least for five years. Models: Three different model were proposed in this study Sales growth model Panel data model Wilson & Morris model

Results
Over 28 years, 714 M&A were observed in sampled restaurant firms. Out of those 714 M&A , 93 were conducted by small firms, its size group were 11.79%, 124 by medium-small firms, its size group were 15.3%, 185 by medium-large firms, , its size group were 23.2% , and 312 by large firms, , its size group were 36.8%. The statistics suggested that larger restaurant firms have been more involve in M&A activities than smaller restaurant firms. The results suggested that the effect of M&A on firm growth continued even in the years following M&A execution, but the effects disappeared two or three years after M&A. During or after the third year of M&A the growth patterns of M&A firms and non-M&A firms were the same. M&A affect sales growth in the short run when the merger processes take place. In longer run a lot of other effects of M&A on growth could be ambiguous.

Conclusion
This study focused on the impact of M&A on firm growth by examining the sales growth rates of restaurant firms upto five year after M&A. This study provide useful information regarding post-M&A performance according to time frame and acquirer firm size. The study found that duration of M&A effects in terms of sales growth might not be long lasting.

Limitations
Restaurants firms as a sample were used so results can not be generalized to other hospitatility industries. Another limitation was that sales growth were used to measure firm growth.

Recommendations and Suggestions

Future research can investigate the effects of M&A on other firm performances:

Profitability Cost reduction or efficiency Accounting and financial performance

Cost efficiency can be achieved faster than sales growth and profitability might improve later than sales growth. M&A does not have a long lasting effect on firm growth. So M&A should not be used for growth but for creation of other types of values such as: Market power enhancement Risk minimization Cost efficiency