Question

On average, does aquisition destroy shareholder value?Yes or No with reasons

Answer 1

The Correct answer is Yes.

Acquisition is an inorganic growth stratergy as compared to organic growth (Internal Expansion). Acquisition provides a shortcut. However this shortcut is costly as the acquirer acquires the target firm at a premium. The acquiring firm may result in overpaying for the acquisition which creates an impact on shareholders value.

Emperical evidences suggests that acquisition do not usually create the type of shareholder value as promised. Big is definetly beautiful for the management but it is not necessarily for the shareholders. Generally following a merger announcement, price of the acquiring company falls while that of the target company rises.Thus the shareholders value decreases.

Therefore it can be concluded that on average,aquisition destroy shareholder value.