Evidence of Profitable Mergers / Acquisitions

We have continually discussed the issue of whether mergers and acquisitions are profitable activities for companies. A recent study, "The Performance Implications of Participating in an Acquisition Wave: Early Mover Advantages, Bandwagon Effects, and the Moderating Influence of Industry Characteristics and Acquirer Tactics," published in the Academy of Management Journal compares the profitability of mergers completed early in the cycle of merger waves versus those completed late in the cycle (press release describing the study here).

For those in the very forefront of the wave, the mean increase is more than 4% above what would be expected from the acquiring firm's past stock performance and from overall market trends in the three weeks following the intent-to-purchase announcement.

In contrast, companies that make their move later in an acquisition wave tend to suffer stock-price declines, with losses reaching an average low of about three percent at the two-thirds point of the wave.