Research Shows 2008 May Be the Best Year for M&As

Results from the latest stage of the ongoing Towers Perrin/Cass Business School research looking at the value created in the last three global M&A cycles reveals that, contrary to conventional wisdom, 2008 may be the best time to do a deal.  
 
"This most recent part of the study looked at the performance of companies before and after peak years of the cycles," said Mark Arian, principal and co-leader of the firm's global M&A consulting practice. What it shows is that, on average, over the last two merger waves, deals done in the year following the peak create more shareholder value than those completed during the upswing and peak years of the wave. It appears that 2007 was the peak year of the current merger wave, suggesting 2008 remains a good time to proceed with a deal.  
 
"We know that many organizations are flush with cash, which gives them the reason and resources to buy. Therefore, we expect M&A activity to increase this year, especially among companies that are currently looking for good acquisition opportunities." This latest research demonstrates that a company can grow quickly and deliver significant value for companies through M&A, particularly after a buying peak. "Many Chinese companies are looking to grow their business by making acquisitions including expansion outside their current markets and home countries," said Steve Allan, principal and M&A expert in Asia. However, the difficulties of cross border M&A are well documented with the people and cultural issues often causing significant challenges inthe realization of the target synergy of the deal. "From our experience working on many transactions we have identified the key drivers to successful integration and to addressing the human capital issues that have so often cause deals to fail to live up to expectations."  
 
Notwithstanding the clear empirical evidences and research data, many Chinese acquirers have been reluctant in focusing on the people issues during a M&A transaction. "Many in China believe that one can and should address people issues after acquiring the business, while others believe that one can develop M&A successes by adopting the approach of feeling the stone to across a river, even in a cross border deal. It is important to note that the latest research clearly shows that both mentalities could be detrimental to the M&A success of an organization," added Andy Lee, senior consultant, and M&A expert in Greater China.  
 
Positive performance of post-peak years  
 
The Towers Perrin/Cass Business School study examined the two prior merger waves and found the post-peak years (1990 and 2000) delivered higher shareholder value compared with deals completed in the frenzy of the M&A booms. This was true for all deals, although the research focused on those between $400 million and $1.5 billion in size (adjusted for inflation). Combining the two waves gives a clear and statistically significant picture of performance in pre-peak, peak and post-peak years. Performance in the post-peak years exceeded the Morgan Stanley Capital International (MSCI) World Index by 5.4%, on average, over the two periods.  
 
According to the study, companies have created rather than destroyed value in the current deal wave, in contrast to the prior two cycles. All the evidence indicates this trend will continue, suggesting that the post-peak year in the current merger wave will also add value. "Throughout the recent M&A boom, people have been obsessed by volume, not value. Our research has always focused on the issue we believe is more crucial to shareholders: Has value been destroyed or created? And, if it’s been created, how has that occurred?" said Marco Boschetti, principal and co-leader of the firm's global M&A practice.  
 
"We are all well aware of the many factors that have put the brake on M&A in the current cycle. But with 2