Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

Theevidenceonmergersaddingvalueismurkyatbestand
negativeatworst.But somemergersclearlyaddvalueand
somearesuccessfulatcreatingsynergy.Whiletheymaybe
moretheexceptionsratherthantherules,thepastseemsto
hold some lessons for firms considering the daunting
challenge of delivering synergy in mergers:

• Mergersofequals(firmsofequalsize)seemtohave
  alowerprobabilityofsucceedingthanacquisitionsof
  a smaller firm by a much larger firm.
  36 Thismaybebecausetheculturalclashesthatare
  inevitable when two large firms come together
  (CitigroupandTravelers,forinstance)willdelaythe
  process of implementing and delivering synergy.


• Cost-saving mergers, where the cost savings are
  concreteandimmediate,seemtohaveabetterchance
  of delivering on synergy than mergers based on
  growthsynergy.Growthsynergies,afterall,notonly
  aremoreelusivebutarelesslikelytobeputdownon
  paper and therefore less likely to have explicit
  mechanismsforfollow-up andmonitoring. Astudy
  by McKinsey on synergy values examined the
  proportion of promisedsynergy value deliveredin
  costsavingsandgrowthmergers,andtheresultsare
  summarized inFigure 15.5.
  37

FIGURE 15.5Synergy—Delivered versus Promised

Source:Christofferson, McNish, and Sias (2004).