Mergers & Acquisitions and Wealth Formation (Destruction)

Mergers and acquisitions are an inevitable reality in the corporate world. M&A activity is the single biggest vehicle for foreign direct investment in the United States.

Economic developers across America have had to deal with the direct and indirect effects of M&A decisions. Many communities have come up on the short end of the stick when a major company in the community merges with or is acquired by another company.

How does it impact stockholder wealth? The National Bureau of Economic Analysis (NBER) has investigated this issue and you may find the study insightful. I know I did.

Mergers and acquisitions destroy shareholder wealth in the acquiring companies. New research from the NBER shows that, over the past 20 years, U.S. takeovers have led to losses of more than $200 billion for shareholders. However, this result is dominated by the big losses experienced by shareholders in big companies. Small companies that make acquisitions create value for their shareholders.

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