Consolidation is the name of the game in the new round of mergers and acquisitions (M&As) sweeping global business, says The Boston Consulting Group (BCG) in its study The Brave New World of M&A, released here on Thursday.
Consolidation deals as a proportion of the total value of transactions leapt from 48.7% in 1999-2000 to 71.4% in 2006, the study reveals. This has been facilitated by greater globalisation, more liberal regulatory environments in certain sectors and unparalleled funds for M&As.
The report states that private equity (PE) firms have played an increasingly important role in the market, aided by low-cost debt. ?PE?s growing involvement in the M&A market is striking. The total value of PE deals has soared from $160 billion in 2002, when M&A values and
volumes hit a record high, to $650 billion in 2006,? said P Harshavardhan, director & partner, BCG.
The study, based on a sample size of 3,190 global M&A transactions between 1992 and 2006, shows that M&As destroy progressively more value as the size of the target increases relative to the size of the acquirer.
Targets worth more than 50% of the acquirer were found destroying nearly twice as much value as targets that are worth less than 10% of the acquirer.