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Hubris or good business? The psychology of M&A

by James Phillipps on Feb 05, 2014 at 10:18

Some simple rules may help guide us through the M&A minefield:

-Does the acquiring company have good corporate governance, with strong independent directors who can contain over-enthusiastic executives?

-Is the bidding process competitive, potentially leading to the dreaded ‘winner’s curse’?

-Is the acquisition financed by cash (good) or shares (bad)?

-Is the acquisition in the same industrial area? Diversifying acquisitions are often poor uses of shareholder capital.

So while we can anticipate that a recovery in M&A will help support the overall stock market, it will be important for investors to examine the merits of the individual deals very carefully.

Citywire A-rated James Illsley runs the JPM UK Managed Equity fund, whcich over three years has returned 30.06% versus a FTSE 100 return of 27.65%

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