The Hindu Business Line : Bigger deals not better: Boston Consulting

Mumbai, Sept. 14 Bigger deals are not necessarily better deals, says Boston Consulting Group, sounding possibly a note of caution to Indian companies that have already or are in the process of forging mega acquisition deals.

“Deals that are above $1 billion destroy nearly twice as much value as transactions under $1 billion, reflecting the difficulties of integrating large targets,” said the BCG report on creating value through mergers and acquisitions (M&A).

The bigger the acquisition, the greater the chances of value getting disintegrated, said Mr P. Harshavardhan, BCG’s Partner & Director, without citing examples of such deals.

Deals progressively destroy more value as the size of the target increases relative to the size of the acquirer. Targets worth more than 50 per cent of the acquirer destroy nearly twice as much value as targets that are worth less than 10 per cent of the acquirer, the report said.

Cash transactions safe

Another insight that could be useful to Indian companies looking for acquisitions is that cash transactions have a more positive impact on value than deals that rely on stock, a mix of stock and cash or other payment combinations, the report said.

This possibly was because cash investments indicate to the market that serious money is at stake and the acquirer has calculated that it will earn a return higher than the cost of capital.

M&A deals

On whether the party is set to continue, Mr Harshavardhan said the domestic market is set to see more M&As over the next three to five years.

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