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M&A activity is value enhancing for the UK economy

Research shows economy benefits from £178m boost per M&A deal

A new report for the Government shows that the UK economy benefits from an average short-term boost of £178m per deal from domestic M&A activity, but despite this, it also finds that most deals still fail to deliver shareholder returns in the long term.

Contrary to previous research, the study found no convincing evidence to support the view that M&A is damaging to the wider economy.

The findings come from a study carried out for the Department for Business, Innovation and Skills by the M&A Research Centre at Cass Business School. It was commissioned by the Government to inform the long-standing debate over whether M&A activity generates or destroys value the UK economy as a whole.

Senior Researcher in the M&A Research Centre at Cass Business School, Anna Faelten (pictured), said: "Based on an analysis of combined target and acquirer share price returns, we find evidence that M&A activity generates economic benefits to the UK economy amounting to an average of £178m per deal."

In addition to adding value to the economy in the short term, corporate takeovers are found to stimulate growth in company revenues and employment in the long term.

In particular, acquisitions are found to add 35% revenue growth above the industry benchmark in the first year post-transaction compared to the year prior, a growth trend which continues for acquirers in the second and third years with 46% and 56%, respectively. Similarly, a rise in acquirer employment of 34%, 42% and 50% above the industry benchmark in the first, second and third years post-acquisition respectively, as compared to the year before the event, demonstrates that growth is positive in all three years following an M&A transaction.

Results from long-term shareholder value analysis show that, on average, those firms which are successful in their acquisition strategy add significant value for their shareholders, more than the amount by which the wealth of unsuccessful acquirers' shareholders decreases. However, it is not all positive because the majority of UK companies are still unsuccessful in adding value through acquisitions. Similarly, in terms of the impact of M&A deals on efficiency and profitability, acquirers fail to realise efficiency synergies with the median decrease in EBITDA/sales being 0.6 percent below the industry benchmark.

Professor Andrew Clare, Associate Dean at Cass Business School, said: "These results show that although M&A transactions continue to be challenging for corporates, for those companies that get it right, acquisitions can add significant value to their businesses. Taken as a whole, the evidence from our study provides evidence that takeovers are beneficial to the wider economy."

A spokesperson for the Department for Business, Innovation and Skills commented: "We would like to thank Cass Business School for this valuable contribution to the recent consultation A Long-Term Focus for Corporate Britain, which has provided us with a much more up-to-date understanding of the impact of UK domestic M&A."

The study was conducted using a sample of more than 3,200 deals involving a UK target between 1997 and 2010.

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