If there's so much academic opposition to M&A, why does it exist?
I was doing a project for school that required a lot of academic review. I was definitely aware that M&A is disfavoured by academics, but the level of this opposition is just huge beyond my expectations. M&A is just a punching bag for academic publication. Most scholars who otherwise have great contribution to business and finance appear to be shitting on M&A if they researched it.
Obviously there's big mismatch between armchair academia and the real world. But the guys who have consistently argued against M&A are big respected names.
Why do companies still do M&A when it's been academically proven it destroys more than it creates?
Because who gives a shit about what academics have to say
I could argue similarly but again, people do actively care about their opinions. Damodaran for example is a guy whose work is highly reliable everywhere and has always maintained negative view about M&A. So I’d say many practitioners do care
Bold of you to assume company management teams can understand anything you are contending. Remember, these are MBAs who didn’t even become shitty MBA associates in IB/Consulting.
If I had to guess, you are likely an overeager undergrad (likely underclassman) with fewer than 5 finance courses under your belt.
Work for while in the corporate world and you’ll look back on this post with shame lol
Everyone knows that going to the casino is not a winning strategy yet so many people do.
It is about thinking that you are better than the others and that you can succeed where they failed.
Furthermore, there is a constant need for growth with pressure put on exec who likely cannot reach expected results only by organic growth (thus getting fired or stock crash). Lot of M&A deals end-up having great outcome though and it is sometimes lifesaving for the company which is bought (insolvency, too small for their market, synergy gains, etc).
Not saying that this a great, more and more people tend to think that we need to rethink the global economy on a degrowth model for sustainable aspects and shit
I don't have a full answer as their is probably none but those are the main points I see
It’s a classic principal-agent problem. Management team of the acquirer is the agent and the agent’s main objective is increasing their compensation.
All things equal, Bigger company = Bigger Comp for management team
Academics care about ethicality. Investors care about profit. That's what separates it.
Think about it like this, you're a shareholder that is looking for the most value to come from your investment into the company's shares. You have substantial voting power, so when an accretive deal with lots of synergies comes your way you go for what YOU want. Not what society wants, not what the company's customer wants, what you want.
You don't care about how it affects the environment, or if someone gets cancer from the chemicals you put in the lake. You care about the real value potentially generated from a tool. Nor do you care about how many people got fired for you to be richer. You don't think about all of that, because you know it'll muddle your head.
Academics do not have the inclination to only focus on the shareholder perspective, because there are so many stakeholders that are affected more.
Sure you can argue about "Oh but what about ESG investors??" ExxonMobil is on ESG indexes. The marketplace for that type of ethical investing is skewed from inception.
Your comment is completely off topic and you obviously haven't taken any advanced finance/corporate finance classes; typical midwit trying to sound smart.
What OP is referring to are the academic studies that have tracked historical M&A deals and concluded that approx. 70% of M&A deals are dilutive while only 30% are accretive to share price and shareholder value both in the short and long term after deal close. It has nothing to do with the ESG and sustainability BS u were talking about.
I also finished taking Damodaran's equity valuation class and a few other upper level finance electives and wanted to clarify for some other commenters that academics, including Damodaran, ARE NOT against M&As. Rather, they are against the overpaying for target companies by acquirers during an M&A deal, and more specifically they are against the concept of "control premiums" which add no value for the buyer's shareholders. For example, if an M&A generates 10% synergies but the buyer pays a 30% control premium, then net-net the buyer is overpaying by 20% and it is this dilutive aspect of acquisition premiums that academics dislike, not M&A's themselves. Most M&A's, excluding control premiums, are synergistic by nature, even if only 1%, and hence why IB is needed; to literally create value for society.
My god you sound fun at parties.
To clarify: OP's question was "Why do companies still do M&A when its been academically proven it destroys more than it creates"
He does not mention anywhere about accretion/dilution (wow shocker! The company you're purchasing because you think you can realize synergies has a lower EPS?? Its almost as if you're looking to buy companies to PROFIT from something other than the performance of the company, and it is really hard to quantify true synergies!!)
I was mentioning the societal affect of company mergers and acquisitions. Because as you know, because you're a TRUE academic, the first thing companies cut for margin expansion and efficiency is human capital. The societal "value" for a M&A transaction is not trickled down to anyone besides the shareholders in many cases. (Not all, yes I know M&A at times allows for larger companies to expand and if everything works out they will hire more people to fit the growth they make. But that is not the case in every instance.)
And your answer fits perfectly within mine. You see how you're only caring about the shareholder perspective? How the investors get something out of the deal while the common person gets fucked? Please think about the value creation in society while companies lay off thousands of people in the next few months. And FYI: Money that never sees the light of day in the bank accounts of the wealthy has no value for society.
They hate us cause they aint us
"Why do people do M&A when it usually destroys value"?""Why do people start businesses when over 50% of small businesses fail?"People take risks. Welcome to the world of business.