Valuation: Measuring and Managing the Value of Companies
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View SourceAlthough studies of announcement effects give useful results for large samples, the same approach cannot be applied to individual transactions. While the market correctly assesses the results of transactions on average, that statistic does not mean its initial assessment of a single transaction will always be correct.
To overcome the large acquisition bias of the studies described, several of our colleagues looked at acquisition programs of companies rather than single acquisitions.8 They examined 1,645 nonbanking companies from 2007 to 2017 and grouped them into four categories:
Programmatic acquirers9 completed many acquisitions.
Large-deal companies completed at least one deal that was larger than 30 percent of the acquiring company’s value.
Organic companies conducted almost no M&A.
Selective acquirers did not fit into the other three categories.
Exhibit 31.5shows the results, including median total shareholder returns (TSRs) versus peers, along with the 25th and 75th percentiles, and the number of companies outperforming peers. Programmatic acquirers performed best, with a median outperformance of 0.9% TSR per year. The large-deal companies performed the worst, consistent with the studies of announcement effects.
Exhibit 31.5Success Rates of Observed Acquisition Strategies
Source: Dealogic.
