Smaller deals rather than mega deals? Look at the Serial Acquirers…

Posted on Monday, 22 October 2007. Filed under: Commentary, Mergers |

The New York Times Dealbook on M&A referenced an article from Reuters about Microsoft.  They reported that Microsoft CEO Steve Ballmer said on 18 October that they would focus on up to 20 smaller acquisitions of $50 million to $1 billion each annually rather than mega-deals, despite rumours that Microsoft has been looking at Yahoo and Facebook — clearly not ‘small’.  They reportedly have a war chest of $23 billion earmarked for acquisitions.

Is Microsoft publicly stating a change that other companies are considering?  In previous merger waves, it was the decline of the mega deals that was one of the signals of the end of the wave.  Although this may sound strange in the same month when RBS, Santander and Fortis completed their purchase of ABN Amro for almost $100 million (€70 million), it is not surprising at this point in the merger cycle.

Should this be good news for Microsoft shareholders and other large acquirers that decide to pass up mega deals for a serial acquirer strategy? 

The research in this area related to this merger wave is still being completed (and our own research conducted with and sponsored by Towers Perrin has just been finished and will be released later this year), but we do know that serial acquirers do not have a great record, despite their reputation for excellence in acquisition skill.  Nor do the acquirers of mega deals.  From our earlier research, we have found that acquirers of medium-sized deals are the most successful.  These are deals in the $400 million to $1.5 billion size — probably the ‘sweet spot’ for Microsoft in the acquisitions they would most likely make.. 

If Microsoft and the other large acquirers can avoid the temptation to make too many acquisitions, their new focus can not only be successful for themselves, but also could keep the M&A market alive. 

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