Creating Value with Mergers and Acquisitions This article describes the track record of United States acquirers

over the past 12 years and the factors that have differentiated successful transactions from those judged unfavorably by equity investors. In order to assess the success of mergers and acquisitions, the authors measured the stock price response to the announcement of mergers and acquisitions transactions over both the short and the long term. They found the acquirers shareholders suffered losses of around 0.5%-0.7%. Also, a typical acquirers stock outperformed its peers by approximately 0.5% over the two years following the acquisition's announcement. Acquisitions of more mature targets were better received than acquisitions of targets with high expected earnings growth. Finally, acquisitions of foreign companies and assets created more shareholder value than domestic acquisitions, suggesting that the synergies and benefits underlying overseas expansion have been a source of significant strategic value. The article later attempts to distinguish types of transactions that create substantial value form types that do not. The authors have identified a few factors that appear to have a very meaningful impact on the market's perception of an acquisition's success. The factors that seem to matter are whether the target is public versus private, whether the transaction is financed with cash or stock, whether the acquisition is in the same industry or not, and whether the target is domestic or foreign. Other factors that are commonly believed to be important are EPS impact, transaction size, credit rating impact, and historical profitability of the targethave no bearing on the long term returns of the acquirer. In conclusion, the authors analysis indicates that M&A activity can create value for acquirers who carefully choose their targets and who focus on merger execution.