Does M&A Pay? A Survey of Evidence for the Decision-Maker

Abstract

In the wake of the largest M&A wave in history, it is appropriate to assess the evidence on the profitability of this activity. One popular view is that merger activity is highly unprofitable. Does research sustain this view? This paper reflects on what it means for M&A to 'pay' and summarizes the evidence from 14 informal studies and 100 scientific studies from 1971 to 2001. The review comments on various research approaches and highlights findings for the broad activity as well as niches of special note. The mass of research suggests that target shareholders earn sizable positive market-returns, that bidders (with interesting exceptions) earn zero adjusted returns, and that bidders and targets combined earn positive adjusted returns. On balance, one should conclude that M&A does pay. But the broad dispersion of findings around a zero return to buyers suggests that executives should approach this activity with caution.

Keywords: Mergers and Acquisitions, Valuation, Corporate Finance

JEL Classification: G34, G30, G31, G32