New research identifies which M&A activities create shareholder value

New research conducted by Intralinks Holdings conducted in association with the Mergers and Acquisitions Research Centre (MARC) at Cass Business School, City University London, that identifies the relationships between M&A activity and shareholder value creation.

The study finds that companies significantly underperform the market during periods when they announce no M&A activity (whether acquisitions or divestments) and even more significantly underperform companies which are actively engaged in M&A. Contrary to most previous research studies, which have only focused on the impact of individual deals over shorter time periods, this study finds that companies outperform the market the more frequently they engage in acquisitions. The study also finds that a limited amount of divestment activity by companies also leads to market outperformance. In addition, the findings reveal that companies tend to deliver superior total shareholder returns with a balanced strategic M&A portfolio management programme, which includes at least one acquisition per year, as well as conducting 1-2 divestments every three years.

“Most previous academic studies on shareholder value creation from M&A focus on the impact of individual deals over relatively short time periods, and typically show strong positive returns for targets and negative returns for acquirers. These new research findings challenge this conventional thinking,” says Phillip Whitchelo, vice president of strategy and product marketing, Intralinks. “This is the first comprehensive global study which analyses the effect of M&A on companies’ performance in the context of their overall programme of M&A activity over multiple time periods. The results show that the relationship between M&A activity and shareholder returns is more complex than previously thought, and that when a strategic approach is taken to M&A portfolio management, companies can significantly outperform the market and their peers.”