When two companies merge, or one acquires another, this is usually sold to investors as a great opportunity for synergies or cost reductions. But do they really work? We wanted to find out
We collected the monthly closing stock prices of every publicly traded company in the U.S. over the past 18 months. We normalized all stock prices so that you can more easily compare results.
We also collected information from corporate Balance Sheets (based on SEC 10-K and 10-Q filings) to identify companies that had mergers or acquisition activity in the quarter immediately preceding this timeframe.
Explore stock performance for companies with different characteristics.
When viewing all companies, you will see a high degree of volatility in the market. On average, prices have stayed relatively flat.
When you tap on different market cap ranges, you will see that companies above $1B in value have done best, increasing in value by 7.5% on average. Companies valued between $100M and $1B have lost 4.9% of their value. And smaller companies have lost a whopping 28.4% of their value on average over the past 18 months.
It is notable that historically, smaller companies have had higher volatility but have produced higher returns on average than larger companies.
Choosing companies with All Market Caps again, and slowly sliding the % of Market Cap Spent on M and A, you will see that companies having done acquisitions have not performed any better than the rest of the market. On average, companies having spent at least 5% of their valuation on an aquisition lost 4.8% of their value. Among these, smaller companies spending more than 20% of their value on an acquisition lost 24.1% of their value.
Don't be fooled. Announcements of large mergers sound exciting. But the data shows that, at least recently, they don't pay off.