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2003 - Year of Successful M&A

The Wall Street Journal reports today that 2003’s M&A deals were largely winners in Dealmakers Got It Right In ‘03, Study Finds.

Measuring the success of M&A deals is a notoriously difficult art, viewed with caution by the bankers who do such transactions and even the academics who track them. Indeed, a closer look at some of the numbers shows a complex picture. Median returns for all-cash deals was in positive territory, while all-stock deals registered negative returns. And when benchmarked against their respective industry indexes — not just the S&P 500 — the merging companies generally fare less well.

But J.P. Morgan’s overall findings suggest that the M&A world has taken to heart the failures of the previous five years. The failures were sometimes extravagant: companies vastly overpaying for assets that left them crushed under too much debt. Other times, the failings were more subtle: Companies glossed over due-diligence and rushed into a transaction for fear of losing the target to a competitor.

Today, caution rules the boardroom, say the bankers and lawyers who put deals together. Directors are demanding months of due diligence, and even then only about one in 10 would-be combinations reach fruition. As a result, says Paul Parker, head of U.S. mergers and acquisitions at Lehman Brothers, “a lot of the transactions are being de-risked. There is so much focus on the due diligence and integration ahead of an announcement.”

The focus on this article was on mega mergers, but it holds as a snapshot of a more cautious time, when M&A moves are made after more careful scrutiny. Less hangover from bad M&A deals means deal-flow may accelerate, which could benefit some startups and midtier players, as well as acquirers dealhunting. Definitely a healthy sign!