Year-to-date through July, over $800 billion of merger-and-acquisition (M&A) activity has been announced in the U.S. Should acquiring-company shareholders expect to benefit?

In this study we show that, among Russell 3000 firms with acquisitions greater than 5% of acquirer enterprise value, post-M&A acquirer returns have underperformed peers in general.

Specifically, we find that:

• Acquirers lag industry peers on a variety of fundamental metrics for an extended period following an acquisition.
• Stock deals significantly underperform cash deals. Acquirers using the highest percentage of stock underperform industry peers by 3.3% one year post-close and by 8.1% after three years.
• Acquirers that grow quickly pre-acquisition often underperform post-acquisition.
• Excess cash on the balance sheet is detrimental for M&A, possibly due to a lack of discipline in deploying that cash.

Throughout this work, we look at M&A factors and returns using both an event study and a regression approach and conclude with a simple multi-factor strategy for differentiating good from bad deals in the aggregate.