There are many valid reasons why companies pursue mergers & acquisitions (M&A) as part of their strategic growth plan. These include portfolio diversification, addition of top-line growth, acquisition of key technology, geographical expansion, or some combination of the above. However, the acquiring company is typically required to pay a premium of up to 30% in order to win the deal competition, and to satisfy shareholders of the target company.
In addition, it is widely held that the majority of M&A transactions fail to create shareholder value, or actually destroy it. So why would companies overpay by up to 30%, and then be faced with an approximately 30% chance of actually realising the value of the transaction?