Bain: Experience in M&A improves Total Shareholder Return

19 February 2013 2 min. read
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Companies operating in the field of mergers and acquisitions perform better financially. This is evident from the study 'The Renaissance in Mergers and Acquisitions' of Bain & Company, the consulting firm analysed the ROI of 1,600 major global deals made ​​in the past decade. Companies involved in M&A achieved an average Total Shareholder Return (TSR) of 4.5% per year, compared to 3.3% for those that were not involved in any merger or acquisition. The report also shows that companies who are regularly involved in major deals have a higher TSR in the long term

Repetition is king

As a rule, the more experience a company has doing M&A, the greater the likelihood that its deals will be successful. Companies that were inactive (no mergers or acquisitions during the period) recorded 3.3% annual TSR. Those that did between one and six acquisitions boosted their performance signi�cantly, to 4.5%, and those that did more than six topped 5% TSR.

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Big deals deliver higher ROI

The study from the strategy consulting firm also reveals that the larger a deal is, the higher the probability that it has a higher ROI. The more of a company’s market cap that comes from its acquisitions, the better its performance is likely to be. In fact, companies making acquisitions totalling more than 75% of their market cap outperformed the inactive companies by 2.3 percentage points a year, and they outperformed the more modest acquirers by one percentage point a year

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As a result of the previous two conclusions, companies that are highly active in mergers and acquisitions and at the same time indulge themselves in large deals benefit from significantly higher returns.  The below matrix shows the TSR’s as a result of the frequency and size of deals.

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