So what is going on?
A recent survey of more than 500 C-level executives reveals that a surprising confidence gap may be responsible for the absence of a strong recovery in M&A activity.4 What lies behind this confidence gap? Executives cited a number of things, including the increasing attraction of joint ventures, as well as continuing uncertainty around key economic and geopolitical issues, such as U.S. tax and trade policy and the consequences of Brexit.
It may also be that this confidence gap is further exacerbated by a pervasive – but, we believe, mistaken – belief that "most M&A deals destroy value".5
In this paper, the ninth in our ongoing series of Credit Suisse Corporate Insights, we revisit M&A and – in particular – the usefulness of some simplistic M&A mathematical shortcuts. First, is there any truth to the notion that “most M&A deals destroy value”? Second, does conventional M&A math provide the right signals about the viability of doing a deal and taking advantage of M&A's demonstrated ability to drive and sustain shareholder value?
To answer this second question, we will look at several accounting-centric ways in which M&A is typically assessed – the math around EPS accretion/dilution, the size of any premium paid, and whether goodwill and intangibles adversely impact the market’s view of operating performance. We believe that each of these ideas needs fresh thinking and – upon revisiting each in turn – we will show that M&A remains a vital and value-creating means of growing businesses, providing platforms for new products, markets and ideas.