Next time a Silicon Valley boss asks you to back a takeover say no.
Deal-hungry tech and telecoms chiefs who pursue big money takeovers end up destroying value for their shareholders, a major study of nearly 8,500 deals showed on Tuesday.
Companies in the tech and telecoms sector clinching takeovers worth more than $100 million between 2008 and 2018 came bottom of a list of sectors showing which industries made the best returns for shareholders.
The report, from Cass Business School and Willis Towers Watson, said share prices of telecom firms buying a company slumped 1.5 percentage points below the MSCI World Index after the deal was complete. Tech shares lagged 0.5 percentage points below the index.
Willis Towers Watson global M&A practice leader Steve Allan said intense competition to buy tech firms was one factor for the poor performance.
“It’s harder in that particular sector because every company is buying tech,” he said. “It’s a highly competitive sector for people doing deals ... people are paying a higher price so it’s harder to create value.
“A lot of tech deals also fundamentally depend on people... the key assets have brains and go home at the end of the day. Those deals can be very hard because you have to get the message across that being bought is good for them and their career.”
Materials and consumer staples firms made the strongest returns from deals — 5.6 percentage points and 5.3 percentage points respectively.
The study, which looked at 8,300 global M&A deals with a value of $9.4 trillion, looked at aggregate figures and did not disclose individual takeovers.
However high-profile deal flops in tech include Microsoft’s 2011 takeover of Nokia. One success was SoftBank’s takeover of Arm, with shares in the Japanese firm rising after the deal.
