Making M&A deal synergies count

When acquirers keep deal synergies under their hats, are they missing a valuable opportunity? We analyzed 1,640 deals over the past six years, and found that on average, companies have made acquisitions by paying a premium of 40% or more than their targets’ market value. Those premiums were usually justified with a nod to potential synergies, but few companies – in fact just 20% since 2010 - actually specified those synergies in their deal announcements. Companies may have their reasons for keeping quiet, but in our experience, where there’s a synergy story to tell, companies should be as forthcoming as they can be. We’ve found investors tend to reward acquirers with a higher share price when they disclose the sources of value in their deal announcement. And naturally, when companies articulate how the expected long-term value of the cost synergies is greater than the premium being paid, investors are even more enthusiastic Finally, we’ve found that acquirers that updated the market on synergy benefits during deal integration, were more likely to maintain the positive share price effect of those announcements over the longer-term. Of course, investors don’t reward companies for simply making announcements. But where there’s synergy value, we believe more information is better.