Anslysis of M&A Deals Effectiveness

<p>In this paper the effectiveness of M&amp;A deals is analysed. There are used return on assets, capital &nbsp;and profitability ratios, and not cumulative abnormal return, to measure the effectiveness. The technique applied in the analysis involves creating the key metrics of the balance sheet, income statement and statement of cash flows of synthetic consolidated entity before the deal by summing up two separate entites and comparing the performance of a merged company after the deal to the performance of the sum of two companies, or the synthetic company, before the merger. &nbsp;The effectiveness is examined in two sectors: IT and basic materials. Then the relationship between the deal&#39;s rationale (explained by acquiror&#39;s top management) and its success is established. The results suggest that on average M&amp;A deals don&#39;t improve an acquiror&#39;s return on invested capital (and assets), but if tmanagers realize fully and explain in depth the ways in which a combined company may outperform two separate companies, than the merger would be more successful than in case if they confine themselves by general comments (e.g. the merged company woud have more mineral resources, reserves etc.)</p>