Why Do Most Mergers and Acquisitions (M&a) Fail to Create Value for the Acquirer's Shareholders? What Are the Main Reasons in Your Opinion?

1099 Words May 6th, 2013 5 Pages
Why do most mergers and acquisitions (M&A) fail to create value for the acquirer 's shareholders? What are the main reasons in your opinion?
Identify the difference between a good company and a good investment

Most of publicly traded companies’ mergers destroy value for buy-side shareholders and at the same time sellers are compensated with premiums1. The same opinion is stated in one of the most quoted book about valuation and creating value: most of M&A deals don’t create value for buyers2. According to G. Bennett Stewart there are two main reasons why acquisitions too frequently reduce share prices of the acquiring company: sometimes this occurs because the buyer’s acquisition criteria make no sense, and more often the buyer simply
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in 2/3 cases in the beginning of 1980-es share prices of buyers fall down after the deal was announced) because investors and analytics has skepticism about gaining those synergy by acquirer. That happens because that synergy is stochastic. At the same time the key to success in M&A deal is in concerted efforts and warm work after the transaction is closed. Most of M&A advisors don’t get retainer and got paid only when the deal is closed. That is why they may have an interest to make the deal done whatever the economic reasons are and
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Eugene F. Brigham, Michael C. Ehrhardt. Financial Management. Theory and Practice / South-Western Thomson th Learning, 10 edition, 2010, p. 899 9 Questions of Value: Master the latest developments in value-based management, investment and regulation. Edited by Andrew Black / Prentice Hall (Financial Times), 2009, p. 289 10 In this case ROIC < WACC, that destroys value 11 Vividly described in Michael Lewis “Liar’s Poker” 12 Kenneth R. Ferris, Barbara S. Pecherot Petitt. Valuation: Avoiding the Winner’s Curse / Prentice Hall (Financial Times), 2005, p. 222 13 nd David J. Collins, Cynthia A. Montgomery. Corporate Strategy: A Resource-Based Approach / McGraw-Hill, 2 edition, 2007, p. 137 14 Richard A. Brealey, Stewart C. Myers, ibid, p. 867 15 Eugene

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