By John Pancoast
Here’s some fodder for this topic from around the web:
- One consulting firm reports that research “has shown that acquirers destroy shareholder value in nearly 60% of acquisitions undertaken.”
- A second firm quotes another study study revealing that “83% of mergers and acquisitions failed to produce any of the anticipated benefits, and over half actually ended up reducing the value of the companies involved.”
- And finally, from a third, in its own 2014 M&A Trends Report: “Almost nine in 10 corporate survey respondents believe that at least some portion of their transactions did not generate the return on investment that they had anticipated.”
These – and numerous other examples – vary from intriguing (I would really like to know more about the ones that succeeded) to useless (9 in 10 people also say that they didn’t like some portion of their lunch yesterday. If you’re the chef, what are you supposed to do with that information?)
The fact is that consultants have been throwing these scary numbers around for years, quoting new or old studies, many times without listing the specific source. We find this alarmist approach to be offensive.
McKinsey and BCG, in their published research, usually take a higher road. They offer insights that are more analytical, if not always applicable to a given deal. Being more intellectually rigorous, they point to characteristics that more often are associated with success. (e.g., acquisitions of relatively big companies are generally less successful than acquisitions of relatively small companies.) These insights can be challenging to apply to your next deal.
Only one examination of M&A results ever registered with me as being truly unbiased. Conducted by an academic with no dog in the fight, it concluded that:
- “On average, buyers earn a reasonable return relative to their risks,” and
- There is a truly wide variation in returns around the average, and understanding the reasons behind these variations is the key to managing the deal for success.
So our challenge is to understand the drivers of good and poor results across a lot of variables. If this interests you, take a look at Robert Bruner’s book.
-/-
For our more recent discussion of what drives the variation, and leads to top-quartile M&A results, see our recent post, What Drives M&A Performance?