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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.
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