Research by Towers Perrin and Cass Business School compares deal success in three global merger waves since 1988

TORONTO, ONT. – April 3, 2006 – In a world where the conventional wisdom is that M&A destroys shareholder value, new research examining global M&A cycles by Cass Business School and Towers Perrin indicates that the opposite could be true. Contrary to the past, companies involved in deals in the current M&A cycle are generally outperforming the market and creating more value for shareholders.

Results of the research show that in the current merger wave, companies involved in M&A deals worth more than $400 million (but excluding the largest mega-deals) on average outperformed the market by 7.0%. When compared to share performance of similar companies involved in deals at the same point in the two most recent merger waves, the share prices at those times underperformed by 2.5% and 6.4% consecutively.

Marco Boschetti, Principal at Towers Perrin, said: “This is the first research of its kind. It shows that M&A deals made in the recent M&A wave are creating shareholder value. In the past, our own research and plenty of other studies before, all pointed to the fact that, in previous cycles, the trend was that M&As resulted in share price underperformance. This time it’s different. The indications are that this time companies have learnt vital lessons in areas such as due diligence, deal management and the integration process.”

The research analysed the outcomes of deals globally within the current M&A cycle and those whose peaks arose in 1989 and 1999. Cass and Towers Perrin set out to identify whether M&A deals in the current merger wave, that began after 2002 and may yet be peaking, are more successful in financial terms than the two earlier merger waves. The research comprised quantitative analysis of over 200 deals across a full range of financial indicators, including ROE, EPS, and share price performance versus the MSCI World Index, complemented by qualitative data from interviews with senior management of companies involved in deals in all three cycles.

Scott Moeller, author of the report and Director of Executive Education at Cass Business School, said: “At a time of significant M&A activity, this research may provide shareholders with some comfort in terms of what these current deals will deliver. Underlying the unequivocal change in deal success was evidence that lessons have been learnt from past deals and that the improvement stemmed from better discipline and governance demanded by shareholders, more attention to the implementation of the deal, and addressing people issues.”

Three factors behind the change in trend

Deal management and governance

The first factor is better deal management and governance. Senior management today are much more in tune to shareholders’ opinions and have a greater obligation to justify shareholder value than was necessary in the previous two merger waves. Governance has also become more strictly regulated; with the introduction of Sarbanes-Oxley in the US all stakeholders need to be taken into account when considering any possible deal.

Better due diligence

A second factor to have an effect on this change is that companies have learnt from mistakes made in the last two merger waves, and are conducting a more rigorous due diligence before making a final decision. Through a meticulous examination of the company’s finances, together with other cultural and organisational issues as well, not only can deals be priced more accurately but the differences and synergies between the two companies can also be more clearly identified. Therefore, there are fewer deals in the recent merger wave that have failed as management have been in a position to make more informed decisions on what is a good deal or not.

Financial synergies and people integration

The third factor that has had an effect on the success of M&A deals in the current merger wave is that in recent years, when looking at integration of the two companies, it no longer involves only the financial synergies. Cultural synergies are taken more seriously than they were in the previous two merger waves. Nowadays, HR issues are included much earlier in an M&A process. By identifying the people issues at the due diligence stage, companies are able to achieve swifter and more effective integration, therefore having a stronger foundation to work from when executing the integration of other operations. Another survey conducted by Towers Perrin called HR Rises to the Challenge: Unlocking the value of M&A, found that there is a direct correlation between successful deals and early HR involvement.


In each cycle, the research compares the year preceding the peak as it is not known yet whether 2005 is a peak year for the current wave. So the years compared from each wave are 1988, 1998 and 2004. The period of analysis is a one-year-period surrounding the closing of a deal, allowing the report to analyse deals that have taken place within this merger wave. Also, companies with more than one significant acquisition per year were excluded from the study so that specific deal success could be measured.

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