‘Contrary to what you often hear, acquisitions do create value’

With a takeover announcement, the stock market effects of the targets typically increase by 20 to 30 percent.

Professor Mathieu Luypaert from Vlerick Business School has been conducting research into value creation in M&A for years. Which factors contribute most to value creation in deals and which factors lead to value destruction?

Mathieu Luypaert, Associate Professor of corporate finance at Vlerick Business School, made the choice in 2004 to focus on the M&A field. And now, twenty years later, in addition to his teaching position, he still conducts research into mergers and acquisitions. As director of the Center for Mergers, Acquisitions and Buyouts at Vlerick, he has now collected an impressive amount of data and insights into the M&A field that he still finds fascinating.

Professor Luypaert, you have been active in the field for quite some time. Have you observed significant changes in the Belgian mergers and acquisitions market?

Luypaert: “Certainly, the acquisition market, not only in Belgium but worldwide, is constantly undergoing changes. It is a dynamic market that is cyclical. Looking back in time, we have seen multiple waves of merger activity. For example, around 2000 there was a peak due to the technological revolution, deregulation and internationalization. This wave was followed by a downturn after the dotcom bubble. Similar patterns occurred in 2003-2007 and more recently from 2013 to 2022, with a brief pause during the COVID-19 pandemic in 2020.”

You note that the market has shown negative developments since 2022. Can you tell us more about that?

Luypaert: “Since the second half of 2022, simultaneously with the decision of central banks to increase interest rates, the M&A market has been steadily declining. 2023 was largely negative, with signs of recovery in late 2023. Unfortunately, these hopeful signals were muted by geopolitical tensions, especially the war in Gaza. At the moment, the market appears to remain stable in 2024, albeit with uncertainties surrounding geopolitical events and elections in America.”

What are your expectations for M&A year 2024?

Luypaert: “The prospects are not particularly optimistic for a major recovery. The market seems to remain stable with a possible slight increase. Inflation has normalized and interest rates are unlikely to rise much, so that is contributing to that slight recovery, but geopolitical events, such as ongoing wars and US elections, could have a significant impact on the M&A market. Large transactions and private equity deals are particularly sensitive to market conditions and more volatile. Small strategic transactions, especially in a country like Belgium with predominantly medium-sized transactions, show more stability and are less dependent on market fluctuations. We are now at the level, globally, of 2013: the beginning of the last wave. So maybe we’ve hit the bottom and we’re not going to drop any lower. But whether that big increase will happen in 2024 is another story.”

What can you say about the role of SMEs in Belgium in mergers and acquisitions?

Luypaert: “The SME, with its focus on medium-sized transactions, remains relatively stable. This segment is influenced by demographic factors and strategic opportunities, rather than strictly financial motives. In Belgium, with many family businesses, private equity plays a role in making succession possible, both within and outside the family.”

Let’s go back to the initial question about changes in the M&A market. Can you tell us if you have observed any significant shifts?

Luypaert: “Absolutely. I conduct an annual survey among M&A advisors and experts in the acquisition market, based on a survey. Last year we celebrated our tenth edition, and I took the opportunity to analyse long-term trends. A striking finding was the professionalization of the advisory component over the past ten years. What was previously considered a field of ‘cowboys’ has now become much more professional.

Another important aspect is the shift in the reasons behind transactions. Ten years ago the emphasis was often on cost savings, but now we see a clear shift towards growth-oriented transactions. Companies make acquisitions for sales synergies, the acquisition of specific technologies, or the attraction of certain talent, rather than purely for cost reduction and efficiency.”

That is indeed a remarkable change. Why do you think this happened?

Luypaert: “It has a lot to do with the emergence of new technologies. Companies make acquisitions to acquire knowledge and technology, which is inherently a growth strategy. Many industries have changed significantly in recent years due to disruption, and the quickest response is often to purchase knowledge and technology. This results in growth-oriented motives instead of cost savings. In the past, takeovers were often associated with layoffs, but academic research shows the opposite. After a merger or acquisition, we often see growing employment. Companies are now focusing more on retention, with retaining talent being an important goal.”

That is certainly a positive development. And what would you like to mention as a third notable change?

Luypaert: “A third striking trend is that the market has become more ‘seller friendly’. Over the past decade we have seen multiples rise, resulting in higher prices and a more favourable environment for sellers. Although valuations are declining somewhat due to the current market conditions, it generally remains an interesting market for sellers.”

Let’s take a look at the current challenges for parties active in M&A, with a focus on investors. What do you think are the biggest challenges facing them right now?

Luypaert: “There are currently several challenges facing investors, especially private equity. An important aspect is the market conditions. They are in a complex situation with significant committed capital and a lot of dry powder, but at the same time they are experiencing difficulties in obtaining debt financing. In addition, the cost of debt financing has risen sharply, significantly reducing their return potential. As a result, they are adjusting their financing structure, investing more equity in transactions and focusing their attention on private debt funds, given the reluctance of banks.”

Understandable. Do you see any other changes or adjustments in financing structures?

Luypaert: “Certainly, in addition to the shifts in financing structures, we also see more deferred payments, vendor loans and earn-out structures in M&A contexts. These adjustments facilitate the financing of transactions and reflect the dynamics of the current market.”

Are there any other critical challenges you see right now?

Luypaert: “Yes, in addition to financial challenges, there is also the difficulty – and at the same time an opportunity – to convince people of major decisions, especially among top managers who are considering making an acquisition. It is easy to justify when everything is going well and others are also making acquisitions, but in times of adversity it can be difficult to defend an acquisition before the board. Interestingly, academic research shows that these are the most successful transactions that occur when others are reluctant. So, it takes a certain courage and strategic insight to make the right move at that moment.”


Despite the challenges, many great Belgian transactions took place in 2023, as evidenced by the nominees for the M&A Awards.

As you pointed out, mergers and acquisitions often happen in waves. Can you explain why the starting point of such a wave is actually the most interesting moment?

Luypaert: “Absolutely, and this is an important point. When a wave starts, at the initial point, it is often the most intriguing moment. Not at the peak of the wave. At that moment there is often a herd behaviour where others make transactions and you do not want to be left behind. But when all goes well, more generosity towards price is shown. At peak times, multiples are typically higher, meaning you pay more for trades. In more difficult times you are naturally more critical. If you do make a transaction, you are confident.”

This brings us to the topic of value creation, which is of course also an important part of your research. What can be said about that? Which acquisitions are doing well in that area? And why?

Luypaert: “This is a subject that is very close to my heart. My main message, and I try to emphasize it as often as possible, is that academic research shows that acquisitions actually create value. This may seem obvious, but it’s often not what you hear. You often come across figures that indicate failure rates between 70 and 90 percent. However, if you look at the research, it shows that acquisitions add value. For example, with a takeover announcement, the stock market effects of the targets typically increase by 20 to 30 percent.”

That’s certainly an interesting observation. But what about the acquirers?

Luypaert: “Previously I would have said that the acquirers are more or less break-even, but recent years also show positive effects when announcing an acquisition. So, both targets and acquirers become more valuable. It is good for the economy, value is created. And the interesting thing is that, despite common concerns, employment increases after takeovers.”

That is certainly positive. But what can we say about the long-term effects?

Luypaert: “It is a little more difficult to measure, as there are many other factors at play over a longer period of time. Studies of long-term accounting performance show predominantly positive effects. I have also conducted a similar study myself. But it’s important to understand that over a period of three to five years, many other events occur, such as multiple acquisitions and market movements. This makes these studies slightly less reliable, but in general they confirm the positive effect in the long term.”

Clearly. So value creation is generally maintained.

Luypaert: “Yes, certainly. If you look at merged companies, you usually see higher growth in sales, and they often also realize economies of scale in costs. This confirms the sustainable value creation that takes place in successful mergers and acquisitions.”

As is known, psychological aspects also play a major role in takeovers. Can you tell us more about these factors in relation to value creation?

Luypaert: “Certainly, one of the determining elements is who makes the takeover, especially the top management. Research, with a focus on the CEO, for example, shows that good or bad acquisitions do not depend so much on companies, but rather on good or bad CEOs. The interaction with the CFO also plays an important role, especially with ‘influential CFOs‘. These high-profile CFOs contribute to higher value creation during acquisitions.

Interesting. So the leadership team is crucial. Have any more studies been done on this?

Luypaert: “Absolutely, the research into the composition of the board of directors is also remarkable. Diversity on the board, such as age, gender and national background, plays a role. But it is striking that when the CEO is also the chairman of the board, this often leads to less effective monitoring, resulting in less successful acquisitions.

Another recent PhD I supervised further emphasizes the impact of shareholders on value creation. The shareholder structure plays a crucial role. Is it a family, private equity, or a publicly traded company? The different structures influence the type of transaction and ultimately value creation. For example, family shareholders show less interest in high tech and are more reluctant to take over innovative companies. They also tend to operate less internationally but are inclined to look outside their own industry. This often arises from the desire to spread the family wealth.

Private equity investors, on the other hand, often tend to look to the same industry to become a market leader and specialize in a particular segment. They strive for focus and excellence in a specific sector. On the other hand, family businesses have a long-term vision, aimed at stability and continuity across generations.”

Clearly. And what is the importance of advisors in all this?

Luypaert: “Advisors play a significant role, and there is clear research that shows that there are good and bad advisors. The interesting thing is that this is often personal. A study showed that it is the individual consultants who influence value creation, more than the reputation of the consultancy firm they work for.”

That’s an interesting perspective. And finally, is there a preference between large investment banks and smaller boutique advisors?

Luypaert: “Although there is limited academic research, the available research suggests that boutique advisors are often stronger in special and complex transactions, especially in specific sectors or cross-border transactions. For complex transactions, boutique advisors often appear to perform better than larger investment banks.”

What research is planned in the near future?

Luypaert: “Yes, there are several. I do two types of research. On the one hand, practice-oriented research, with the takeover monitor that we send out annually to M&A advisors. And on the other hand, I really do purely academic research. In this year’s monitor we focus on the influence of AI on acquisition processes, from target identification to contract drafting. AI is already used intensively in the legal profession, especially in contract drafting, and in the private equity industry it is increasingly used to efficiently monitor a large number of companies. Virtual data rooms, like Ansarada’s, use AI to predict the behavior of interested parties, which can direct the target’s focus.”

That sounds promising. Now, regarding your academic research, you mentioned two divergent areas: non-profit M&A and US stock market mega-transactions. Can you provide some more insight into these studies?

Luypaert: “Certainly. In my research into nonprofit M&A, I look at the increasing trend of mergers between nonprofit organizations. Many nonprofits now generate their own revenue and conduct business activities to fund their social causes. Factors such as sources of income play a major role in determining whether mergers take place.

On the other hand, in mega-transactions on the US stock market, I examine the private deal process that takes place before the acquisition becomes public. We analyse the strategy of the first bid and have preliminary results that suggest it is better to start high. Then there is a greater chance that there will be one-on-one negotiations.”

Thanks for the explanation, Professor Luypaert. We look forward to the publications and perhaps we can do a follow-up.

Luypaert: “With pleasure. It is always interesting to continue to investigate and discuss the impact of mergers and acquisitions.”

Read also: This is how M&A professionals reduce risks in 2024

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