Tag Archives: Terrorism

News

Terrorist Attacks Damage Local Economies For Up To Two Years When It Comes to M&A, New Study Finds

Do acts of terrorism affect the mergers and acquisitions of the companies close to where they happen? According to a recent study from Durham University Business School not only can such events bring current M&A deals to a grinding halt, the repercussions can last for up to two years afterwards, significantly damaging business prospects and local economies.

The research, conducted by Professor Dimitris Petmezas alongside colleagues from Manchester Alliance Business School and Surrey Business School, sought to explore how exogenous shocks, such as terrorist attacks, can impact local business economy due to the uncertainty they leave in their wake, and to what extent.

Professor Petmezas and his colleagues reviewed the M&A activity of firms located in and around the locations of a sample of terrorist attacks in the USA which were heavily covered by media, between 1995 and 2015. They then used Metropolitan Statistical Area (MSA) information and physical distance to measure each firm’s geographic proximity from the attacked locations.

Terrorist attacks were also rated on their severity by considering   the number of human casualties caused.

Whilst an immediate negative impact of such shocks was to be expected, the study revealed several harmful consequences for firms located near to terrorism-stricken areas when it comes to their long-term M&A prospects.

Firstly, such firms were revealed to become less attractive to potential acquirers and, as a result, were less likely to receive an acquisition bid. Furthermore, this impact was shown to last for as long as two years after the incident occurred.

Furthermore, those firms which had deals outstanding when attacks occurred were far more likely to have those deals withdrawn.

Whilst there was an argument to be made for lower-priced acquisitions becoming more desirable due to the potential to save money, the study’s findings did not support this perspective. The researchers say that acts of terrorism instead prompted acquiring firms to show preference for cross-MSA targets, or targets located farther away from where the acquirers were located, supporting the argument that target firms located in areas subject to a terrorist attack become less attractive as a result.

Furthermore, for those few firms which did manage to secure deals, the research revealed they often received a  lower acquisition premium, leaving them with less bargaining power. The research detailed how this also translated into lower target firm stock returns and lower overall acquisition synergies.

The result, according to Professor Petmezas, is a significant hit to local economies and their productivity, which can have a domino effect on workers.

Another key element, the researchers say, is human capital, which can potentially stoke the flames of terrorism-induced uncertainty, as labour productivity in firms located in terrorism-stricken areas decreases, increasing the real option value to delay M&A investments.

The researchers believe the study also highlights important lessons to be learned not only by hears on industry when it comes to deciding how to staff, market, and protect their organisations, but beyond that to local and national governments and policymakers.

 

Professor Petmezas says:

“Our results suggest that personal uncertainty and fear affect the acquirer-CEO’s bid decisions. Our study uncovers a negative link between terrorism intensity and acquisition premium offered which becomes more pronounced when the acquirer CEO is more risk averse or when target firms are more human capital dependent.

“Specifically, our results reveal that terrorism affects corporate investments and value creation,
indicating that it has real economic effects. For policymakers, to combat this, greater consideration and expenditures on public security and local-level investment should also be considered to give companies a firmer grounding to bounce back.”

The full study has been accepted for publication in the Management Science journal.

Thought Leadership

Safe Not Sorry: The Evolution of Commercial Security

Martin Reed, Chief Executive at Incentive FM Group, explains why commercial security has evolved alongside the commercial landscape

The challenge of delivering commercial security has seen significant changes in recent years, with many providers now struggling to play catch up. Priorities around securing members of the public, staff, high profile buildings and large open spaces have irreversibly shifted with an increased threat of terrorism and violence.

Coupled with the constantly evolving environmental challenges, a tough economic backdrop is also forcing security providers to work within testing budgets. Big security decisions are being made in unchartered territories and a holistic approach is now imperative for a successful and safe operation.

How has the environment changed?

Historically, security solutions were driven by a main objective to stop theft and prevent damage to products and assets. Of course, for retail and public spaces, issues such as theft have not gone away, with organised retail crime (groups of criminals stealing merchandise, data or cash from retailers) accounting for £562m in commercial losses last year. However, the last decade has seen security strategies also having to incorporate and prioritise the wider safety and security of people and assets. The Institute of Economics and Peace has estimated that the direct cost of terrorism to the global economy in 2014 was $52.9 billion – a ten-fold increase since 2000 – with the indirect costs at $105 billion.

Currently the national level of terrorist threat is deemed ‘substantial’ by MI5, which has resulted in facilities management companies playing a vital role in planning and preparing for potential incidents. As a specialist facilities management provider, companies like Incentive FM Group are also tasked with preparing for a change in the threat level from ‘substantial’ to ‘critical’. As this threat of terrorism fluctuates, the stages of preparing and implementing security protocol in public spaces have to be agile enough to predict risk and adapt, with the sufficient technological capabilities to counteract any threat.

As security services face up to these new challenges, leadership teams are simultaneously having to decipher appropriate reductions to stay afloat. The balance between providing a holistic security service and remaining operationally effective has never been tighter. This is where recruiting smartly and investing wisely help steady the ship.

Building the right team

The relevant skillset for security professionals, like in any industry, changes with the landscape. New threats require new solutions and the private market has to respond accordingly. As the threat of terrorism and violence increases, it is vital for specialists to recruit professionals who have a focus on vigilance and negotiation skills over the historical security characteristics of physical ability alone. Technological insight, attention to changing details, identifying threats, decision making, mitigating risk, and the ability to continually review security measures are just some of the skills needed in the modern security environment. As is using the wider service team such as cleaning staff which, as an integrated service provider comes naturally to us, but can be a different way of working for single service security providers.

Finding the right balance between sustaining a no-nonsense presence that reduces threat, whilst also ensuring the customer experience is welcoming and positive, is a modern pressure. One of the key assets to holistic security methodology is the recruitment and appointment of an eclectic range of skilled people with different backgrounds. To tackle a diverse problem that is ever-changing, a diverse team is needed; both customer-facing and office-based.

Being part of wider industry bodies, such as the SIA Pacesetter group, can also help to share best practice and improve practices and methodologies for our current environment.

Mitigating the risk of rising knife-crime

There is no doubt that the risk to retail staff from knife attacks is on the rise. The recent ACS 2019 crime report revealed that a knife was used in 68% of violent shop incidents involving a weapon; up from 64% in 2018 and 32% in 2017. As knives also increasingly become a weapon of choice for terrorists, a security plan has to incorporate the different scenarios where a blade or sharp object can pose a threat to staff and/or customers. There is no one size fits all approach to a problem like knife-crime. Smart investment in both personnel and technology is what determines how successful security solutions are in the face of a rising knife-crime problem.

A proactive approach to the identification and management of risk now has to be the default security position over simply providing a reactive ‘body of service’. The relationship between the security provider and the client is more important than ever. Our approach is to position the relationship as a partnership from day one. This is the only way to fully address the unique risks to a business and provide comprehensive, bespoke and reliable security solutions in a tough and rapidly evolving environment.