Execs predict acceleration of mergers & acquisitions: survey

Drug Store News, Jan 22, 1990

Execs predict acceleration of mergers & acquisitions: survey

NEW YORK - Merger and acquisition activity will stay at the current level or pick up over the next five years, rather than decrease, predicted 53 percent of the 150 top executives at Fortune 1000 companies who responded to a survey by Braxton Associates, the strategic consulting arm of Touche Ross.

Moreover, 77 percent of respondents expect merger activity in their own industry to maintain current levels or increase next year.

The survey was done to provide insight into the increasingly important corporate strategy of growth by merger. Braxton noted that 1988's deal value of about $250 billion, as reported by W.T. Grimm, represents 40 percent of the annual capital expenditures of U.S. corporations.

Mergers and acquisitions represent significant investments and are typically a company's largest and most time-consuming investment decision in the year the deal is done, Braxton said in the survey report, yet, "In spite of the stakes involved, the acquiring companies' odds of success are lower than for re-investment into the base business." One reason, according to Braxton, is the 40-percent premium above market value that acquirers typically pay.

Ninety percent of survey respondents said their own companies are likely or possibly will do additional mergers within the next two years. Those who report past success with mergers are more likely to plan future mergers.

"These results strongly suggest that the tripling of the annual value of deals that took place in the 1980s is not a cyclical peak," said Thomas L. Doorley III, managing partner of Braxton and author of the report. "Merger and acquisition activity is likely to maintain this higher level in the 1990s."

Sixty percent of respondents said mergers and acquisitions already completed will help their industry's health over the next five years, while 25 percent said they will hurt, and 14 percent said they won't have an effect.

Seventy-three percent of respondents reporting on a total of 241 mergers and acquisitions said their expectations were met. On this finding, Doorley commented, "Most observers, including [Braxton], estimate that only 30 percent to 35 percent of mergers undertaken are truly successful. The extremely high report of successful mergers in our survey may reflect unwarranted optimism.

"But there are reasons to support that optimism," he continued, citing survey findings that companies are taking more time to prepare for and complete mergers, and very few diversification-driven mergers, historically the least successful, are being done.