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The Real Deal on M&A, Synergies, and Value
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The Real Deal on M&A, Synergies, and Value

Decker Walker, Gerry Hansell, Jens Kengelbach, Prerak Bathia and Niamh Dawson
Boston Consulting Group, 2016
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Editorial Rating

8

Qualities

  • Analytical
  • Innovative
  • Overview

Recommendation

Although the term “synergy” often describes the rationale behind mergers and acquisitions, the metrics that define it remain elusive. In this illuminating study, Boston Consulting Group professionals gathered evidence to investigate the relationships between acquirer behaviors and M&A outcomes 12 to 18 months after a transaction. Perhaps not surprisingly, the research found that success inevitably lies in management discipline. getAbstract recommends this instructive study to CEOs and others involved in the M&A decision-making process.

Take-Aways

  • The idea of M&A synergy – that is, “the source of the tangible expected improvement in earnings…that occurs when two businesses merge” – needs sharper focus and more precise definition.
  • A useful tool for analyzing M&A success is “the P/E [price to earnings] ratio of synergies,” which measures the premium paid for an acquisition divided by the expected “pretax synergies.”
  • Another metric is “relative total shareholder return” (rTSR), which compares the buyer’s postacquisition stock price performance against an industry index.

About the Authors

Decker Walker et al. are professionals with the Boston Consulting Group.

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