Washington-Agencies
A new global study by Bain & Company, The M&A Revival, spanning 11 years, 18,000 deals and 1,600 companies, reveals that mergers and acquisitions create more value when done right and with a replicable model built on an integrated set of M&A capabilities. The firm found that the average total shareholder return on investment was 4.5% for the companies in the study, while the average total return was 6.4% for the 1,600 companies in the study that conducted more than one M&A transaction per year with an estimated value of approximately 75% or more than the company's market capitalization over the 11-year study period.

Return on Investment
Bain & Company called this class of companies “mountain climbers.” The return on a $100 investment in companies labeled “Mountaineers” in 2000 was $197 in 2010, compared to $163 for all companies in the study, a difference of 20% or $34. In contrast, the average total shareholder ROIC for companies that did not do any M&A between 2000 and 2010 was 3.3%. For example, the return on a $100 investment in Inactives in 2000 was $143 by the end of 2010, $20 or 12% less than the average.

<David Harding, partner at Bain & Company, director of global M&A advisory and lead author of the report, said: “The key takeaway from the study is that M&A creates more value if done right and with a replicable model built on an integrated set of M&A capabilities, but if M&A is not done at scale and in the right way, it does not deliver the desired results.”

David Harding, partner at Bain & Company and director of global M&A advisory, and lead author of the report, said: “The key takeaway is that if M&A is not done at scale and in the right way, it does not deliver the desired results.

Categories of companies
Bain & Company divided the companies included in the study into four categories, including the aforementioned ”mountain climbers“ category, which includes companies that repeatedly integrate the target company into their management, called ”successive supportive acquisitions,“ and companies that acquire new companies and replace them with the parent company (which made the acquisition), called ”selective replacement“ deals. The other category is the category of companies that conduct mergers and acquisitions worth more than 75% of the market capitalization of the parent company (the acquirer) and are called ”big bettors“.
Bain & Company identified two categories of those with a similar average ROE relative to the overall average ROE of the companies included in the study: ”sequential leveraged buyouts“ and ”selective replacements.“ Companies in these two categories conducted M&A transactions with an estimated value of approximately 75% or more than the company's market capitalization during the study period, with companies in the ”Sequential Supportive Acquisitions“ category categorized as were categorized as active M&A players as they made more than one acquisition per year during the 11 years of the study, while those in the ”Selected Replacement Deals“ category made less than one M&A per year during the study period, while those in the ”Selected Replacement Deals“ category made less than one M&A per year during the study period. The average ROE for companies in the ”Big Bettors“ category that on average conducted one or fewer M&A transactions per year during the study period was 4%, below the overall average and the lowest of the four categories. The return on a $100 investment in ”Big Bettors“ companies in 2000 was $154 in 2010, which was $22% or $43 below the overall average.
Sensitive business decisions
Harding added: ”The policy of making sensitive business decisions that can involve high risk is not right in the world of M&A, but there is nothing wrong with some mega M&A deals that can sometimes pay off. However, the study suggests that most of the time such deals don't work.“

According to the report, M&A creates value if done right, especially with a replicable model built on an integrated set of M&A capabilities, including:
Making M&A an extension of the company's growth strategy - Providing a clear rationale for setting goals and demonstrating how acquisitions contribute to value creation.
It requires clarity on how each transaction can create value - leveraging existing capabilities to add value to the target and expanding capabilities to create opportunities not previously available to the company.
Test the fundamentals and hypothesis of the deal against ”conventional wisdom“ - requiring a clear justification for the winning bid and identifying where the company can add clear value.
Figure out what you need to integrate (and what you don't need to integrate) - formulate a value creation plan and develop an implementation plan for the integration process. Initiate an implementation plan focused on prioritized sources of added value.