Is M&A a zero-sum game?
Might be a stupid question, but is M&A a zero-sum game, the same way the arithmetic of active management is a zero-sum game and even a negative-sum game after transaction costs and fees?
For every winner, does there have to be a loser? Obviously we say everyone can win at the same time due to synergies, but we know that's BS empirically and most deals do not add value, control premia are arbitrary, and management is overconfident.
What does the literature document empirically? What's the arithmetic of M&A? Idc what management (or even bankers) THINKS, I wanna know what the cold hard data says
Started thinking abt this after my dad's company went thru some acquisitions.
Like with market efficiency, the absolute “best case scenario” in terms of answering the question runs into a joint hypothesis problem. It is impossible to actually know.
Take the statement that most deals are value destroying. How can one actually know that? One can’t. Not in a world where one can’t go backwards in time and change things. And that’s the world we live in.
Idk, this is my tired brain speaking, but I was wondering if M&A can be stretched to hypothesized the same way as in publics - every time someone makes a winning trade, someone else is on the other side of that trade and is losing. Whenever a company makes a winning financial buy, someone else is on the other side and is losing. Maybe not so for strategic buys since both parties say they both win via synergies.
Alpha is a limited gem and only accrues to the few winners. Whoever is on the other side of the winners, loses
(1) First, that’s not necessarily the case. “Winning” and “losing” isn’t binary in the market either. It can be. It doesn’t have to be. Markets aren’t homogeneous. There are strategies that are contradictory that allow two sides of the same trade to make money. For example, an individual leg may or may not make money but if you are using more than one leg as part of the strategy then it is bad science to not look at the whole.
A really good example of this is a cb arb strat. You buy cbs and short the underlying equity at the delta. When the stock price goes up the delta goes up and you short more. The opposite happens when the stock moves down. You make a profit on the strategy whether the stock goes up or the stock goes down. All that changes is HOW you make that profit.
(2) The same is true for M&A. It can work the way you described. One side can “win” while the other “loses.” It can also not work that way. It isn’t homogenous. People, businesses, come from different places with different approaches. What may be “bad” for one approach could be “good” for another.
Lets think of a high growth asset with high capex requirements that a pe holds. Pe doesnt have the financial capability to sustain long term investments so selling this to a larger conglomerate can be a win for both. m&a is not necessarily a zero sum game.
Great example. Was thinking of the arithmetic across the entire panel data on average tho
How is the fact that now you are talking about “seeking the average” not the same thing as saying “my thesis is wrong?” You asked if “M&A is a zero-sum game.” You asked “for every winner does there have to be a loser.”
You were provided with ways that your thesis can be false. I get you are pivoting a bit, which isn’t necessarily a bad thing, but it doesn’t seem like you are recognizing this
Bro, life itself is a zero sum game.
Debatable. In fact, people need to realize that success (oversimplifying 'life' to 'success' here I'll admit) is not a zero-sum game, so they won't get envious when someone else has good things happen to them. Because there's enough success for everyone, just maybe not in the same field
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