Salient to Investors:
Bloomberg says two-thirds of company takeovers exceeding $20 billion since 1996 generated losses for the acquirer’s shareholders – the 78 buyers lagged behind the MSCI World Index by a median of 13 percent in the 3 years after completion, falling 21 percent.
Warren Buffett says acquirers typically overspend because they overstate the importance of expanding the size of their companies, and exaggerating their ability to turn troubled businesses around. Buffet tends to leave acquired companies alone instead of tinkering with them or melding them with already owned units.
Author Jeff Matthews said these large acquisitions are usually a sign a bubble has reached a peak because it’s finally swept everyone up. Matthews says Buffett thinks price first, foremost and always, and has the advantage of being able to say no.
Scott Rostan at Training the Street said large deals a recipe for disaster – flashy, expensive, and hard to pull off because synergies are very hard to realize and there may be cultural differences.
Pavel Savor at Wharton said doing a big deal is the riskiest decisions a CEO can make.
Donna Hitscherich at Columbia Business School said buyers overpay and fail to meet cost savings or synergies in the time frames envisioned.
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