7 minute read 3 Mar 2021
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How mergers and acquisitions can create value, defying M&A skeptics

An EY study shows frequent M&A can significantly improve growth in total shareholder return and enterprise value.

In brief:

  • A strong, positive correlation exists between active M&A and growth in enterprise value (EV)  and total shareholder returns (TSR). 
  • Outsized growth in EV and TSR characterized companies of all sizes and sectors among frequent acquirers, EY’s study shows.
  • Companies can maximize M&A value through disciplined diligence on costs and synergies, and a detailed integration strategy.

Bill Sloan, EY-Parthenon Senior Director, co-authored this article.

With media skepticism regarding M&A transactions, one may wonder why global M&A activity continues to rise. In a detailed analysis of shareholder value over time, to see if companies that execute frequent acquisitions create more value than those companies who don’t, the conclusions appear to be clear: strong positive correlation between M&A and enterprise value and total shareholder return growth.


Perhaps the most widely used metric to assess value creation for a company is total shareholder return (TSR), which is predominantly driven by the change in a company’s share price over time. Incentive compensation for many executives includes share price and TSR performance targets. As such, the EY analysis used TSR and enterprise value (EV) growth as the key metrics to assess overall company performance. The analysis examined all public company M&A activity globally over a four-year period from 2015 to 2019. It eliminated incomplete information or data from small companies where returns and EV varied considerably above peer medians.

The resulting dataset included nearly 6,000 public companies and 13,000 M&A transactions, spanning all major geographies and 11 primary industries.

The study also looked at TSR performance and changes in EV through different lenses, including company size, industry, geography, frequency of M&A activity and cross-border transactions, to identify potential differences. It categorized M&A frequency into three groups over the 2015 to 2019 period:

  • Non-buyers: The company did not engage in any M&A activity
  • Infrequent buyers: The company transacted five times or less over the time period
  • Active buyers: The company transacted greater than five times

The findings – strong positive correlation between M&A and EV and TSR growth

The study found a strong, positive correlation between M&A activity and EV and TSR growth, as shown in Figures 1 and 2. Stated simply, on an overall basis, the more acquisitive the company, the analysis shows, the greater the value created. Interestingly, companies that did not make any acquisitions experienced essentially flat EV and TSR growth, but companies that engaged in limited M&A activity (one to five companies) experienced EV and TSR growth at a rate nearly five times higher than non-buyers. As the scale increases, for every five additional acquisitions made, EV and TSR growth increased by roughly 500 basis points. Now, many of us remember from statistics class that a high correlation does not prove causation. This was true in business school, and it is true here. But it is clear from the analysis that there is a strong pattern of shareholder value growth, correlating with frequent acquisitions.

Median EV CAGR

The magnitude of value creation for active buyers versus non-buyers and infrequent buyers is significant. From an EV perspective, active buyers on average grow 12 percentage points higher than non-buyers (Figure 3), and 6 percentage points higher than infrequent buyers. From a TSR perspective, active buyers on average grow 10 percentage points higher than non-buyers and nearly 6 percentage points higher than inactive buyers (Figure 4).

Median EV CAGR

Performance by buyer size

Viewed through a different lens, transactions were analyzed by buyer size and grouped into three categories, based on revenue size:

  • Small companies: revenues up to $100m
  • Medium-size companies: revenues between $100m and $1b
  • Large companies: revenues greater than $1b

Interestingly, the gap between active buyers and non-buyers grew for small- to medium-size companies. The same general trend exists for large companies, as shown in Figures 5 and 6.  

Median EV CAGR by size of buyer
Acitve buyers vs. others median TSR CAGR

TSR and EV growth by industry

The analysis also examined TSR and EV growth by the acquirer’s primary industry focus, again comparing non-buyers, infrequent buyers and active buyers. Consistent with the findings from the previous analyses, frequent buyers created more value than infrequent buyers and non-buyers for all of the 11 major industry classifications, except energy. It is noted that the entire energy sector, on average, generated negative total shareholder returns from 2015 to 2019. In select industries (consumer staples, health care and real estate), infrequent buyers had slightly lower TSR than non-buyers. The magnitude of value creation for each of the 11 industry sectors is shown in Figures 7 and 8.

Acitve buyers vs. others
Acitve buyers vs. others median TSR CAGR

M&A value creation by region

When conducting the same analysis to assess M&A value creation by region, where acquirer and target were within the same region, the results were slightly different, though active buyers’ growth remained strongest. When comparing acquirers among the Americas, Europe and Asia-Pacific regions, active buyers again created more value than infrequent and non-buyers. However, in most cases, infrequent buyers created less value than non-buyers in Europe, and total shareholder return growth was lower for infrequent buyers than non-buyers in the Americas. It may be possible that active buyers gain greater experience executing several transactions and may be more likely to be successful than infrequent buyers. Figures 9 and 10 show value creation by region for active, infrequent and non-buyers.

Median EV CAGR by region
Median TSR CAGR by region

How to create more value through M&A

EY analysis shows that companies that actively execute M&A on average create more value than those that don’t.

Although the data suggests M&A creates value more than it does not, strong execution remains critical to success. There are four ways that companies can drive value through M&A:

  1. Follow strategy-driven discipline – Successful M&A can begin with identifying the “right” target that closely fits the company’s growth strategy. It is important for companies to pursue the right deals at the right time that are based on strategy. Successful buyers tend to be highly disciplined executives who resist succumbing to “deal fever.” Successful M&A executives can actively avoid deals that are off strategy as much as they pursue deals that fit their strategic criteria. Target identification can be driven by a buyer’s corporate strategy and growth plans.

  2. Perform due diligence and synergy estimation – Two key reasons behind failed M&A transactions are often the underestimation of costs and overestimation of synergies. Once a target has been identified, it can be imperative to develop a sound understanding of its business, operations, industry and competitors. Estimating all one-time costs and quantifying synergies accurately are important to effectively value a target. Experience from frequent acquisition activity helps in the estimation and quantification process. Furthermore, effective buyers understand clearly when a deal’s valuation no longer generates an attractive return for shareholders. Executives must be willing to walk away from even attractive strategic acquisitions if the economics no longer make sense.

  3. Conduct effective M&A integration – It is important for the integration program to be detailed and transparent to promote efficient decision making, seamless transitioning and rapid execution. Companies can clearly define how they plan to achieve synergies and how the combined business will be run to enhance value. Strong governance should be in place so that different vertical leads are aligned with the deal objectives and work toward effective integration.

    The M&A integration approach further involves selection of an effective management team, efficient internal and external communication and management of cultural change. The decision to keep or rationalize acquired managers and the eventual rebalancing of an acquisition’s management team play an important role in the success of an integration. Similarly, effective communication with the investors can help build investor sentiment and impact shareholder value.

  4. Develop robust M&A processes and road maps for the future – Active buyers develop playbooks and teams of highly skilled M&A professionals for managing future transactions. Such teams generally include internal executives and external advisors.


More frequent M&A activity by companies of all sizes can boost enterprise value and shareholder return, as the data in a recent EY study shows. Moreover, the analysis also found that companies that engaged in limited M&A activity grew at a rate nearly five times higher than non-buyers, underscoring the value upside of conducting effective M&A. What contributes to the value that can be created is a disciplined approach to due diligence and deal integration as part of frequent M&A transactions. This stands in stark contrast to skepticism about M&A strategy.