Do Mergers and Acquisitions Create Value?
In a 1983 study of mergers and acquisitions over eleven years, Jansen and Ruback reported that most of the value from these strategies were earned by the selling business, not the acquiring company. This was especially true in the case of tender offers to buy a target’s shares publicly. The study found that holders of the target firm usually earned a 30% on their investment, while holders of shares in the acquiring firm usually earned a 4% return on their investment with the completed acquisition. We need not infer from this finding that mergers and acquisitions do not create value, rather commonly acquiring firms simply pay too high a price for their acquisitions.
