Is there any good Book on Past Mergers and Acquisition - Successful and Unsuccessful real deals

Measuring M&A Success (Originally Posted: 11/14/2017)

As recommended on this site a few weeks back, I started reading “Deals from Hell: M&A Lessons That Rise Above the Ashes” that covers 10 deals and what went wrong with them. In one of the early chapters, the author, Robert F. Bruner, goes over three measurements of capital market efficiency, and the best way to determine whether a deal was successful. The measurements are as follows:

1. Weak form. Did the share price rise? Are the shareholders better off after the deal than they were before? Most simply, was the buyer’s stock price higher after the deal than before? Such a before-and-after comparison is widespread, especially in the writings of journalists and securities analysts. But it is a weak test in the sense that it fails to control for other factors unrelated to the deal that might have triggered a price change. 2. Semistrong form. Did the firm’s returns exceed a benchmark? Are shareholders better off compared to the return on a comparable investment? Introducing a benchmark like the return on the S&P 500 index, or the return on a matched sample of peers that did not merge, strengthens the analysis. This kind of test which commonly used in academic research, is more reliable than the weak form tests because it controls for the possibility that the observed returns were actually driven by factors in the industry or the entire economy, rather than were due to the merger. But this kind of test is at best Semistrong because benchmarks are imperfect. 3. Strong form. Are shareholders better off after the deal than they would have been if the deal had not occurred? This is the true test of the cost of lost opportunity, the economists’ “gold standard” of comparison. And it is what most people think they are finding when they look at weak and Semistrong form test results. But the true strong form test could tell a very different story. Consider the case of America Online (AOL)’s merger with Time Warner in January 2001. The weak and Semistrong tests would show large losses to AOL’s shareholders in the two years following the deal. As Chapter 12 reports, AOL Time Warner outperformed a benchmark portfolio of pure Internet stocks, while underperforming the S&P 500 index and media and entertainment indexes. Given the bursting of the Internet bubble, it seems likely that AOL’s shareholders would have been much worse off without the merger. It would appear that AOL’s acquisition of Time Warner was shrewd and successful for the buyer, despite what the weak and Semistrong results show (through Time Warner’s shareholders appear to have cushioned the collapse of the Internet bubble for AOL’s shareholders). The problem that is strong form results are difficult, if not impossible, to observe.

Undoubtedly, this book is framed with a much more academic lens of M&A than many bankers may have. Although, that doesn’t mean this doesn’t have real-world applications. When meeting with clients, do any of these different measurements come up? If so, I would imagine it would be hard selling to a client that “Are your shareholders better off than a comparable investment?” is not the best way to measure the cost of lost opportunity. I would love some input from some senior monkeys on this front.

In addition, at what level of the IB food chain would this sort of thinking start to pay dividends? This largely is dependent on the type of shop, with the smaller the shop, the more junior position one would be interacting with the client and not solely an excel monkey.