Creation of economic value in Mergers & acquisitions

According to industry observers, in M&A operations the risk of value destruction is higher than vice versa the opportunity for creation

by Lorenzo Ciotti
Creation of economic value in Mergers & acquisitions
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The issue of the creation of economic value resulting from Mergers & Acquisitions events is one of the most debated issues in the financial world regarding this type of business. The historical analysis of the value created by such operations is rather bleak.

The shareholders of the purchasing companies receive, in the best of cases, only a fraction of the benefits they had anticipated. It is therefore more likely that it is not the purchasing company that will benefit economically from the operation, but rather the acquired company, through a price greater than the value real value of the company in the deal that led to the total or partial sale of the company.

This is one of the main causes of the complexity in carrying out M&A operations; other problems are the objectives, with profit on the part of the seller and maximization of the profits of the acquired company on the part of the buyer, as well as the various skills necessary in the strategic, negotiation, legal, financial and organizational fields and in the times, which are almost always limited, within which the operation must be completed.

Creation of economic value in Mergers

According to industry observers, in M&A operations the risk of value destruction is higher than vice versa the opportunity for creation, especially if the operation is not strictly carried out with a view to integrating the entities subjected to the operation; on the contrary, an effective corporate union can lead to the adjustment of the gaps that arose in the negotiation and closing phases of the operation.

In other words, the immediate phases of M&A can be emblematic in understanding whether the operation has been successful or not, since the one that officially begins once leaving the offices of financial institutions, lawyers and consultants and puts the path of two hitherto distinct businesses.

However, mergers and acquisitions are considered, even for markets where there are highly speculative investments such as the North American one or in any case inclined towards the development of business capital such as the British one, one of the most complex and difficult managerial challenges for companies and their respective managements.

We recall mergers and acquisitions (M&A) are those operations that transfer control of an activity through an acquisition, while the merger can be considered as the instrument that formally establishes the complete integration between two companies.

In essence, the acquisition anticipates the merger. The practice, often taking advantage of the leverage effect, leads to pursuing a monopoly or oligopoly by circumventing competitive battles.