Capital Allocation: Principles, Strategies, and Processes for Creating Long-Term Shareholder Value

CHAPTER 11

Acquisitions

Nearly all experts agree that the majority of acquisitions do not create value for the acquiring firm’s shareholders. Here are some representative quotes.

The mass of research suggests that target shareholders earn sizable positive market returns, that bidders (with interesting exceptions) earn zero adjusted returns, and that bidders and targets combined earn positive returns. On balance, one should conclude that M&A does pay. But the broad dispersion of finding around a zero return to buyers suggests that executives should approach this activity with caution.

—Robert F. Bruner¹

It’s known as the winner’s curse. When companies merge, most of the shareholder value created is likely to go not to the buyer but to the seller. ...