Managing Director & Senior Partner
Related Expertise: Mergers and Acquisitions, Divestitures, Value Creation Strategy and Shareholder Activism Defense
With the global economy returning to growth after the worst financial crisis in the lives of most business executives, the outlook for mergers and acquisitions (M&A) is improving. Yet, while M&A activity appeared to bottom out in 2009, the recovery in the number and value of deals remains patchy and the prospects for the rest of 2010 are mixed. Although financial markets are reopening and risk perceptions are well below the peaks reached at the height of the crisis, concerns persist about the prospect of a double-dip recession.
Previous research by The Boston Consulting Group demonstrated that while the initial market response to acquisition announcements is usually negative, buyers can create significant value over the longer term through M&A. This edition of BCG’s annual M&A report includes the findings of a new study by the BCG M&A Research Center into the long-term value created by acquisitions. Drawing on a unique global database of more than 3,500 deals since 1992, it confirms that downturn deals create significantly more value on average than deals initiated during boom times. It also identifies the key drivers of success for buyers in both downturn and upturn periods.
A recent BCG survey found that despite the uncertainties, many senior executives of large European companies were planning either to make a major acquisition or to divest businesses in 2010. As the M&A outlook improves, companies must be ready to take advantage of the opportunities that present themselves.
The M&A market appears to have bottomed out in 2009, providing opportunities for financially strong companies to make acquisitions, including significant consolidation deals.
A new BCG study has analyzed about 3,500 deals from around the world since 1992 to understand better how acquisitions can generate long-term value for acquirers. This approach complements the conventional methodology, which focuses on short-term returns during the period around the announcement of a deal. The study found that there was a significant correlation between short-term and long-term returns, and it identified key drivers of value creation through M&A.
The M&A recovery has been anemic, with uncertainties hanging over the economy. However, there are many signs of an improvement in the M&A environment that could lead to an increase in deal-making activity in the coming months.
Despite the positive indicators, there are many concerns about the economy that dampen enthusiasm for M&A. Investors have tended to greet deal announcements with caution.
A recent BCG survey found that, despite concerns about the outlook, a significant proportion of senior executives in the largest publicly listed European companies were preparing for a major deal in 2010. There are deal opportunities for companies with robust finances that are ready to take advantage of them.
This report is a product of The Boston Consulting Group’s Corporate Development practice. The authors would like to acknowledge the contributions of their colleagues Pedro Esquivias, Daniel Friedman, Tawfik Hammoud, Gerry Hansell, Jérôme Hervé, Daniel Stelter, and Olivier Wierzba.
The authors would also like to thank Stefan Bornemann, Blas Bracamonte, Markus Brummer, Sonja Dittrich, Kerstin Hobelsberger, Florian Mezger, and Dirk Schilder of BCG’s M&A Research Center and Corporate Finance Task Force for their extensive support.
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