70% Of M&A Firms Overestimate Synergy And Savings

The combination of cheap financing and expensive stocks makes this an attractive time for dealmakers, but investors have to be more cautious about mergers and acquisitions (M&A) that too often end up as value destroying disappointments.

“The open secret about M&A is that most deals fail to generate the synergies companies expect when they announce a merger,” write Laura Miles, Adam Borchert, Alexandra Egan Ramanathan for Bain & Company. “Most merging companies entering a deal don’t have a clear understanding of the level of synergies they can expect through increased scale. They typically make broad estimates based on prior deal announcements, without considering whether the cost structure of the combined entity is realistic.”