We have a new award-winner for a specious quasi-academic finance paper. Published by London Business School and Towers Perrin, the study purports to show that firms are getting better at M&As, with deal results beating the market. Specifically, 7% of transactions outperformed the market in 2004, compared with 3% and 6%, respectively, in a 1988 and 1998.
Leaving aside the vanishingly small percentages, there is another problem with the result. The studied analyzed performance for a one-year period — six months before and six months after the deal closed — to see what level of financial success has been obtained. The trouble is, of course, that six months is waaaay too short a post-merger window. At that point most firms involved in large mergers are still sorting through the financial flotsam.