Research carried out in 2004-5 by KPMG and Booz Allen indicated that some two-thirds of acquisitions destroy value, but that didn’t stop management teams from trying their hand at doing them. In fact, even when prices were rising, bid up by competition from the flush-with-money private equity industry, M&A was at or near the top of many companies’ agendas.
It’s only now that we’re finding out whether the deals made then were worth doing, and increasingly the evidence is not good. In the last 24 hours, three companies (News Corp, Hewlett Packard and Aviva) have written off a total of $12.5 billion of goodwill between them. That means that they’re recognising that they massively overpaid for the acquisitions they made. This follows the $6.2 billion goodwill impairment charge taken last month by Microsoft on the acquisition of Aquantive. Expect more headlines along the lines of ‘News Corp in $2.9bn newspapers writedown’ as the economic outlook darkens.