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Mergers & Acquisitions. BA 469 Prof. Dowling Spring Term, 2007. Mergers & Acquisitions. M & A’s are the quickest route companies have to new markets and capabilities Changes in technology make M & A’s attractive strategy for growth
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Mergers & Acquisitions BA 469 Prof. Dowling Spring Term, 2007
Mergers & Acquisitions • M & A’s are the quickest route companies have to new markets and capabilities • Changes in technology make M & A’s attractive strategy for growth • 1998 – 12, 356 M & A’s in U.S. with value of $1.63 trillion (versus 10,000 deals - $650M of activity in 1996) • 1988 – 4,066 M & A’s in U.S. with value of $378.9 billion
Changes in M & A Financing • 1988 – 60 % of large deals over $100 million financed entirely with cash, only 2% entirely with stock • 1998 – 50% financed with stock, only 17% financed entirely with cash
Market Skepticism to M & A’s • M & A announcements bring negative reaction in market, acquirer’s stock price falls about 2/3 of the time • Drop in stock price reflects skepticism about the acquirer's ability to maintain values of the acquired business and achieve synergy
Why is the Market Skeptical? • Performance bar set too high • Benefits of acquisition are easily replicated by competitors • Acquisitions require full payment up front: =‘s pressure for timely performance gains • Purchase price of acquisition driven by pricing of other “comparable” acquisitions rather than expected performance gains – no connection to achievable value
