Why predators can be poor investments
However, popular as mega-deals are amongst corporate CEOs and their advisers, investors should be careful: predators are not always great investments and here’s why.
A curious anomaly
S&P Global Market Intelligence looked at the Russell 3000 index between 2001 and 2017 and came to the following conclusions;
· A $1,000 investment in the broad index would have tripled
· A $1,000 investment in their M&A Universe – stocks where deals represented more than 5% of Enterprise Value – would have only doubled
This suggests that whilst some mergers and acquisitions add value to the acquirer, plenty don’t or are not worth the effort and money that is sunk into making them happen.