When Investors Should Buy on the Buy

August 31, 2016, 4:18 PM UTC
Wall Street Illustrations
A bull statue stands in the Financial District near the New York Stock Exchange in New York, U.S., on Friday, Dec. 18, 2009. U.S. stocks rose, trimming a weekly loss for the Standard & Poor's 500 Index, after better-than-estimated profit at Oracle Corp. and Reseach In Motion Ltd. boosted technology companies. Photographer: Daniel Acker/Bloomberg via Getty Images
Photograph by David Acker — Bloomberg via Getty Images

Boston Consulting Group this week released a new report that suggests traders have shifted their attitudes toward the buy-side of mergers and acquisitions. Specifically, it shows that the stocks of public acquirers climbed 0.5% in the seven days after announcing an M&A transaction. From the report:

“Capital markets have long greeted acquisition announcements with skepticism–and with good reason. Research, including our own, has consistently shown that most deals destroy value. But… markets in recent years have behaved differently than in the past and started bidding up shares of acquiring companies.”

Part of the explanation relates to cheap financing, but BCG also argues that acquirers have become much better at post-merger integrations.

The rub, however, is that traders often favor one-time acquirers over serial buyers, apparently believing that the former represent once-in-a-lifetime opportunities for creating value. The reality, per BCG, is that M&A experience is more predictive of creating mid-term and long-term value, by nearly 100% (10.5% avg annual shareholder return vs. 5.3%).

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