New McKinsey research challenges conventional M&A wisdom

Over the past five years, McKinsey has been involved with over 800 individual post merger engagements. The perspective gained from post‐merger management (PMM), combined with corporate finance and strategy (CFS) research, has helped the firm improve target selection and evaluation. McKinsey found several patterns of success in their analysis of M&A data. Larger, high‐performing companies making smaller acquisitions of less successful companies do better than average. When companies pursue a balanced buy‐and‐sell approach over time, performance improves. Companies with an integration program – they make a series of acquisitions that seem to be heading towards a particular goal – do well. Companies that undertake formal, post‐transaction learning improve their performance. Acquirers who are relatively strong performers compared to their targets do better than average in the acquisition game. Acquirers tend to do a better job of making estimates of cost‐based synergies than they do of estimating revenue‐based synergies. Some 70 percent of mergers fail to achieve expected revenue synergies. But on the cost side, the experience is considerably better, though they are still overestimated by 20 percent or more in about 35 percent of the cases.