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M&A Study: Size Of Deals Matters

Bigger isn’t always better. At least that’s what new research into mergers and acquisitions says. A recent study by Towers Perrin and the Cass Business School in Lodon shows that the largest deals tend to lag over the long-term – while the more medium-sized mergers boast strong returns.

Marco Boschetti of Towers Perrin talked with Liz Claman on “Morning Call.” He says there’s a better return of shareholder value in this latest M&A cycle – which contrasts with poorer returns in the past. Also – medium deals (those under $1.5 billion) tend to do “fairly well” after six months and 18 months. Mega deals may boast almost 14% returns after six months – but they barely register at 1.1% a year and a half later. Medium deals stay constant at about 7% throughout.

Boschetti cites “media euphoria” as part of the reason people focus so intently on mega deals – despite their poorer performance. Also – “Buying is fun, merging is hell” – he says. Sometimes the integration of management and corporate culture – among other things – can shave off shareholder value.

How is private equity changing the landscape? Boschetti says cash-rich companies make for ripe takeover targets – and with low interest rates and PE firms being cash rich themselves – the M&A market is alive and well.