Does M&A actually generate alpha for a company?
I have looked at all the deals I have done, and these companies have just had a disaster performance. Makes me question if I add any value or feel like I am being overpaid. However there's are many studies which show M&A actually destroys value. Has anyone looked at them and if so is there some bias which is / is not being captured. Areas of concern would be the time frame that is measured, whether there is survivorship bias etc
Do you think a real estate agents stay up at night thinking the same about their clients?
I think there is a lot to be said on what sector you are working in as well. There are definitely some higher cost of entry companies that cause M&A to be one of the few sources of growth for some industries.
Most of the time executives are dead set on M&A strategically. They are going to proceed with or without your specific firm as an advisor.
It's also not your fault if they overestimated their ability to execute.
Definitely alpha to be made through add-ons into a platform. That's straight multiple arbitrage.
It helps in industries where scale is the name of the game, like retail banking. More deposits = more capital to lend out = more interest income.
But merging a SAAS CRM solution with a social media marketing app could be much less clear. It might make sense on paper, but A LOT will depend on integration. You’re irrelevant when it comes to their ability to integrate
It really depends on a number of factors. As long as a firm does their due diligence, you cannot deny that growth occurs during M&A. That is the whole idea behind synergies, and that 2+2=5 due to savings, etc. If you have an EBITDA of $500MM and you acquire a firm with $50 MM in EBITDA then you’re going to have a $550 MM EBITDA, thus generating Alpha for investors depending on what your benchmark is.
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