Things You Don’t Expect -Pricey Acquistions Are Better


You won't hear this very often, but Justin Pettit from Booz Allen Hamilton is arguing the case for pricey acquisitions.

UBS looked at 1,500 acquisitions that took place between 1992 and mid-2004, all with public companies as the acquirers and with targets that had at least $100 million of revenue. (UBS did not indicate specifically which acquisitions it examined.) It found that acquirers whose stock prices rose in the post-M&A year had bought companies with 50 percent higher price-to-book multiples, on average, than those targeted by acquirers whose stock prices fell.

I'm not sure that the stock price one year after the M&A deal is the best way to measure the success of an acquisition. Nonetheless, if this research proves out, CEOs will be like kids in candy stores. They really don't need the encouragement.