Companies that are more active through mergers and acquisitions outperform their less active rivals, new research has suggested.
A report from the influential Boston Consulting Group (BCG) has found firms that regularly acquire and divest businesses as part of their corporate strategy consistently outperform less active dealmakers in terms of total shareholder return.
The most regular dealmakers outperform one-time dealmakers with an average annual total shareholder return of 10.5 per cent versus 5.3 per cent, the report said.
They also achieve the higher return at substantially lower volatility— exposing their shareholders to less risk because of better integration management when buying, and better preparation when selling, a business.
BCG identified three types of dealmakers—portfolio masters (who made the most deals); strategic shifters (making two to four deals within a five-year time frame), and one-timers (pursuing only one transaction in five years).
The report authors wrote:
Capital markets tend to reward one-timers on deal announcement, likely appreciating the once-in-a-lifetime deal opportunity. Over the medium and long term, however, more active dealmakers clearly outperform in terms of generating value for shareholders.
One-timers that executed deals more frequently over succeeding five-year periods outperformed their former one-timer peers by roughly five percentage points in terms of shareholder return.
The report also confirmed 2015 was a stand out year for global M&A.
Total M&A activity in 2015 returned to levels last seen in the boom years of 1999 and 2007, the report said.
Global deal value increased by almost 40 per cent on top of already solid growth in 2014 of more than 20 per cent.
Growth was strong across almost all sectors, with a number of industries showing high double or even triple digit percentage increases. The value of M&A deals also increased strongly in all major regions.
UK-targeted M&A activity has fallen 39 per cent year on year in the first quarter to $45.9bn (£32.6bn), according to a report from Dealogic earlier this year.
Globally, Dealogic has tracked just under 24,000 deals worth a total of $2.2 trillion, down from 27,000 worth $2.9 trillion during the same period last year.
Deal activity is thought to have been hit by uncertainty around the UK’s EU referendum, the US election, China’s economy and unrest in the Middle East around the world.
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