Can you make money in mergers?By Nathaniel KennedySpotting a winning merger may be harder than you think.What investor hasn't been tempted by the huge gains precipitated by the steady stream of mergers? An announcement can launch the acquired company's stock price 30% or more in a single day. The catch: Investing in takeover targets requires timing the market -- buying after a merger announcement and holding for the long term is no guarantee of a home run. If you're anxious to jump into the fray, step back and take a deep breath. When a deal is announced, wait two to three weeks, until the initial euphoria wears off. Then look for the tell tale signs of a winning merger. After all, spotting a money-making merger isn’t easy. In fact, one recent study indicates that the majority of large mergers fail to create meaningful returns for shareholders. The study, by A.T. Kearney, a Chicago-based management-consulting firm, looked at multi-billion dollar mergers involving about 230 companies across all major industries and global regions between 1993 and 1996. The findings shoot down the perception that investing in mergers is easy money for investors.
Despite the shareholder negatives, mergers have increased thanks to a confluence of market and economic conditions. Stocks -- the currency of mergers -- are holding or increasing their value. Stable interest rates encourage financing. Technology is helping globalize business. And Wall Street continues to reward consolidation. According to Mergerstat, a Los Angeles-based firm that tallies corporate takeovers, U.S. mergers topped $1 trillion for the first time last year, an 84% increase from 1997's record high. Nine of the top ten deals in history were announced in 1998, including the biggest deal ever -- the $77 billion marriage between Exxon and Mobil. That combo alone is worth more than all the mergers that took place in 1991. And analysts predict that acquisition activity will gain momentum in the months and years ahead. |
MergersSix signs of a successful merger
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