Companies go for M&A for reaping higher shareholder value than the sum of the wealth of the companies involved before the merger. The economical benefits of a merger enable the acquiring company or the combined new corporation either to increase revenue or save costs. This synergy is there in any successful merger, which is a testimony of its effectiveness.
At times, however, this synergy may not materialize due to negative elements working at cross purposes.
The shareholders of the acquired company or the selling concern benefit substantially from M&A due to sizeable appreciation in the value of their holdings on the verge of such takeover. This rise in the value of the shares of the selling company gets reflected in the price or exchange ratio of stock for the purpose of M&A. The acquirer does not grudge paying this extra amount towards control premium. No wonder the target company can raise shareholder value through acquisition for its members.
There is enough evidence that shareholders of the selling or acquired corporation gain around 20% in typical amalgamations and 30% in acquisitions or in public tender offers for buying the stocks of the target company directly from its members.
In contrast, the benefits of merger and acquisition to the shareholder of the buying company are usually not very tangible or clear. Rather evidence suggests that their gains are generally minimal. Fall in the value of stock in the post merger period is a common phenomenon.
