Stock markets rewarded companies such as Johnson & Johnson and Cisco which were brave enough to make acquisitions in the months after Lehman Brothers collapse, a study released yesterday showed.
Although firms who made purchases worth $100 million (Dh367m) or more suffered an average 25.5 per cent fall in their stock price, they outperformed the wider market by 6.3 percentage points, the Towers Perrin/Cass Business School research found.
Global merger and acquisition (M&A) plunged 40 per cent in the first half of 2009 to $941 billion, as shrinking economies, volatile markets and scarce debt hammered corporate confidence. The World Bank forecasts the global economy will shrink 2.9 per cent this year.
"Companies with M&A in mind should be emboldened by our analysis: fortune favours the brave," the study's authors, led by Marco Boschetti, wrote. "Fears that M&A is riskier post-Lehman seem to be misplaced."
Repeat acquirers did even better, on average outperforming the MSCI World Index by 8.1 per cent.
Among them, Cisco Systems, Johnson & Johnson, Abbott Laboratories, BG Group, and Symantec Corp all outperformed world, regional and sector indexes.
However, other multiple acquirers such as Eli Lilly and Co, Medtronic and Banco Santander underperformed on some or all measures.
Boschetti said some acquirers were relatively weak, so the study did not simply reflect stock outperformance by strong companies, and he said stock reactions tended to be a good predictor of long-term value creation.
He said the study also illustrated a long-term trend of companies becoming better at sizing up rivals in due diligence, and delivering on promised synergies.
"I've been doing this work for 20-odd years, and I can tell you that the sophistication of companies going through transactions has increased exponentially," he said.
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