There is an underlying flaw in the comparison to average industry returns. A significant majority of companies in an industry do not earn average returns, which tend to driven by a few outstanding performers (e.g., Apple, Cisco). It would be interesting to see how acquirers compare to median returns, which should be a few points lower.

Numbers aside, I think there are companies that are good at acquisitions (Berkshire Hathaway) and others that are not. What makes them good or bad is unlikely to be explained by deal frequency (except for Cisco in its heyday).

They must be a lucrative investment option for the due diligent—for an investor like Warren Buffett, as it is claimed that 80 percent of his wealth is made by M&A deals in the market. What happens to the M&A post-deal is unimportant. The M&A companies benefit financially in the short term; otherwise, the deal is off. M&A will go on forever in the market universe because there is money to be made.

Two factors are always important—whether a deal (theoretically) creates value (e.g., through cross-fertilization or economies of scale) and whether the buyer can realize the value in practice. Since the latter takes some learning (experience is important), I suggest that many frequent acquirers either close deals that do not create value or they will fail to learn from experience.

Risk management, sustainability, social responsibility, and conservation lead a host of often vaguely quantified business-development objectives that will increasingly score over growth when future deals are made. Traditional stock-market players risk being marginalized if they persist in flitting in and out of corporations and using quarterly results to browbeat executives and Boards. We may see more examples in the future, such as those of today’s top agri-input, IT, and engineering companies that fund their operations through the supply chain, customers, and even employee-stakeholder groups, though confidentiality and competitive constraints make it nearly impossible to place the true strategic thinking behind deals in the public space. How can anyone reveal the details of 10-year cash-flow projections with sensitivity analysis? Investing in business can no longer be a ‘one-night’ stand. The ‘due diligence’ culture has to spread to casual and rapacious investors.

Very interesting findings, although it seems that a small number of large acquisitions generate better total returns to shareholders compared to the other categories. Some more details about this would be useful.

Too often the casual investor looks only at the balance sheet, income statements, and cash flow of a future investment opportunity. It would be wise of these individuals to consider the broader economic impact, which your study will enable individual investors to see.

The findings regarding size or number are not surprising. The authors have rightly pointed out that what matters for value creation is identification, pricing and integration of a deal. Larger deals may reduce transaction costs on a normalized basis, but they attract lot of competition, thereby driving up the premium.
What is pleasantly surprising is that a majority of the deals have resulted in excess total returns to shareholders.

Indeed. When signing on new deals—big or small—many or few does matter only when organizations are able to execute them. Taking on deals only provides opportunity while running them seamlessly provides shareholder value.

A very useful finding, thank you. We continue to encounter organizations who claim to have an ‘acquisition strategy.’ Acquisition is not a strategy and your research adds weight to this viewpoint. For example, acquiring some proprietary input to improve your influence over supply is a strategy, not the aquisition itself. Acquiring in multiple markets to create a buyer-valued global capability might be a strategy if it includes the means through which such an advantage might be sustained, but first-mover advantage is only useful if it locks in an industry leadership position. Simply being the first to move will not do so on its own.
The findings are exactly as expected, albeit until now, our expectations were informed only by anecdotal experience and the many studies which demonstrate how few acquisitions achieve anything like the value used to justify making the acquisition.
As a general rule, good strategy creates new value for the market and is unique to your firm. As a consequence, you—the seller—get to extract some additional value above that which is extracted by competitors. Most acquisitions are acquiring value for the market (buyers) that has already been created (exceptions exist but are rare). The cost of the acquisition has this historic value creation factored into it. Taking cost out, in our view, is not usually strategic (unless your strategy is to be a lowest cost supplier). Taking cost out post-acquisition is usually operational—important to do, of course, but it does not create new value for the market. This “operational effectiveness” is often mistaken for strategy, especially by inwardly focused companies.
My observation is, therefore, that your research results, in many ways, reflect the all too frequent misuse of acquisition as a corporate strategy. If there were some way to distinguish in the sample those acquisitions made to create sustainable competitive advantage versus those that were made on the basis of operational effectiveness masquerading as strategy, I suspect the findings would be quite a bit different.

Important finding. It is different from what one might expect. For example, venture capitalists feel that only one or two in ten investments will sizably payoff; hence, they have to make a lot of investments. The findings here say that for mature firms, a different result holds. Only one or a few investments might be needed, and the result depends more upon the care and due diligence taken. This difference the authors found is definitely interesting and worth exploring.