M&A success depends on ‘Announcement Day’ credibility
Dive Brief:
- Investors negatively reacted to six out of 10 mergers and acquisitions from 1995 until 2018, and less than half of the transactions yielded the promised value, according to an M&A study that the researchers say underscores the importance of presenting a convincing argument for a deal on Day 1.
- Businesses tend to focus on getting the deal approved rather than on providing investors during announcement day with a detailed roadmap for ensuring that the deal works, according to Mark Sirower, co-author of the recently published “The Synergy Solution” that focuses on 1,267 deals during three merger waves.
- “You’re trying to solve a classic asymmetric information problem, which is that management presumably knows more about the numbers than investors,” according to Sirower, a leader in M&A and restructuring at Deloitte. “Investors want to know that you have a plan, so if you signal that you don’t have a plan and you’re going to pay a 20%, 30% or 40% premium [for the acquired company], then you’re going to lose that value” in share price over time.
Dive Insight:
Early this year CFOs planning to push forward with M&A found inspiration from 2021, when deal-making by many measures hit record levels fueled by ample available capital, record-low borrowing costs and a robust stock market.
The deals market slumped during the first quarter. Faster inflation, slower growth, rising interest rates, stock market volatility and geopolitical instability stemming from Russia’s invasion of Ukraine prompted CFOs and other deal-makers to pause in deal-making.
