What comes next? Change your CEO and (bang!) you’re acquiring another company
Many things happen when a company gets a new CEO. Cass Business School and the M&A Research Centre (MARC) (which I head) have just released a study showing that CEO’s embark on M&A deals very quickly after being appointed.
In the study which looked at 276 CEO changes from 1997 to 2009 in the UK, France, Germany and Spain, we found that CEOs were more likely to invest than divest assets in their first year in office, although it is important to note that most did neither. This shows that most CEOs look to kick off their new strategy rather than first unwind the strategy of their predecessor.
We looked at a subsample of the CEOs who were hired with a mandate for change (when the previous CEO had been forced out of office or the new CEO recruited externally). For these CEOs, they were more likely to perform a major deal, again evidence of needed to change the strategic direction of the company.
Most notably, those CEOs who did perform a major deal in their first year in office outperformed their peers in the long run in terms of shareholder performance. Success does go to the bold.
However, it doesn’t pay off to be too bold, as those new CEOs who performed more than one major deal in their first year in office showed lower returns. Anecdotally, it appears that they had not yet fully integrated the first acquisition before embarking on the second.
And lastly, we looked further at the divestiture vs acquisition decision. It turns out that those who do a divestiture in their first year will outperform (albeit only for two years) those who do an acquisition in the first year. It appears that the cash infusion and refocus of the organisation from the divestiture do help the company, but only for a time.
You can request a copy of the full study here.
Intelligent Mergers 
excellent post Scott.
X-AG
Thursday, 20 May 2010