Mergers and acquisitions, the big business of the story of the 1990s, look to be picking up again. In the news are the Glencore-Xstrata merger in the energy sector and talk of a bid by UPS to buy TNT Express.
Indications are that the Asia-Pacific not only bucked the global M&A downturn last year but is poised to furnish an impressive number of deals this year.
All of this begs the question whether major mergers work. The relevance to investors is clear: the value of their share holdings can be turned upside down by a big merger, as was seen in the massive drop in equity value of Hongkong Telecom following its acquisition by PCCW.
The overwhelming evidence is that most such transactions fail to achieve their objectives; yet a fixation with expansion through acquisition seems to pulsate through boardrooms globally.
Everyone knows the theory of why companies get involved in M&As. It starts with the notion that bigger is better because there are economies of scale to be had, synergies to be exploited and, when it comes to megamergers (those in the US$5 billion to US$10 billion-plus region), there is a conviction that global players can only thrive if they scare off potential competitors by the sheer scale and capability of their operations.
Before anti-competitive practices legislation became widespread (with the notable exception of Hong Kong), there was also the comforting notion that the market's dominant players could control the prices for their goods and services.
In the much-cited book, Megamergers: Corporate America's Billion-Dollar Takeovers, author Kenneth Davidson is clear that most of the mergers he looked at were unjustifiable and of no benefit to the companies that initiated them. A widely quoted statistic is that 70 per cent of mergers fail to achieve their anticipated value.