Increase in Synergies May Be Transformational

Matt Levine is a Bloomberg View columnist. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz and a clerk for the U.S. Court of Appeals for the Third Circuit.
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Yesterday on Twitter Michelle Leder of Footnoted asked, "How many times is the word transformational uses in M&A press releases?" Being servicey, I went and found an approximate answer. (It's four times a week, give or take.) Since this was mildly amusing, I figured it might be even more mildly amusing to track the development of merger buzzwords over time, so I assigned a platoon of interns to amass and analyze the data. Here's the rough frequency of various buzzwords in merger press releases over the last 10 years:

You could perhaps risk some tentative conclusions here. "Transformational," for one thing, is getting more popular. Perhaps this is a sign of renewed ambition in mergers, as megadeals make up a bigger percentage of merger volume. Or maybe it's just that once enough people call their deals transformational, everyone else wants to be transformational too. Buzzwords have to be born somewhere.

Issues of cultural fit and complementary businesses also seem to be on the rise. Is this a sign of a fuzzy new focus on all stakeholders, instead of just shareholder value, in mergers? (A reaction to activism, perhaps?) Or is it instead a symptom of there being more strategic mergers and fewer private equity deals, relative to the 2006ish boom?

Synergies are pretty much eternal.

The weirdest thing may be that dealmaking cliches bottomed out during the financial crisis, at the same time dealmaking did. This is not a chart of absolute numbers; it's a chart of frequency with which these cliches were found in M&A press releases. And all of them became relatively scarce in 2008. Even if you got a deal done in 2008, you didn't want to tempt fate by crowing about it. You weren't doing transformational mergers to maximize synergies and optimize complementarity and cultural fit. You were merging to survive. The recent uptick in cliches may be as much a sign of optimism as the uptick in deals.

  1. Sadly this is a lie.

  2. Methodology: This is a Bloomberg NSE search with Topic: MNA (that is, mergers), Sources: BUS, PRN, MWR (that is, the three big press release newswires, PR Newswire, Business Wire and Market Wire), Relevance: H, and keywords "transformational*," "synerg*" (so synergies, synergy, etc.), "cultur*" (so culture, cultural, etc.), and "complement*." (And, for totals, with no keywords.)

    That gets you a lot more than just the press release announcing the deal: Signing press releases, closing press releases, shareholder vote press releases, announcements of explorations of strategic alternatives, etc., all can get picked up.

    The trick is that this search does not return a convenient number; it returns a frequency (per hour, day, week or month) based on the frequency of the most recent hits. So it weights more toward the end of the period, and it's more heavily weighted toward the end of the period the more frequent the thing is. What that means is that if you search the period Jan. 1, 20XX through Dec. 31, 20XX, then your frequency of merger announcements will be based on, like, the last few days of December, but your frequency of "transformational" might be based on the whole year. My dumb lazy approximate fix for this was searching on two date periods (Jan. 1 to Dec. 31, 20XX, and Jan. 1 to July 29, 20XX), and then averaging, but this is very unsatisfying. In particular you might expect it to overstate the frequency of buzzwords in years with more merger activity in the front half of the year than in the back half (e.g. 2007?), as the frequency of merger announcements will look low (based on the end of the year), while the frequency of buzzwords will look higher (based more on the whole year).

    Anyway the point is that this is not science but whatever.

  3. And here I want to say: I'm generally a fan of the word "synergies," which is not a meaningless buzzword at all but has a specific meaning (basically increased revenue and/or decreased expenses to be expected from the combining of the business). It's practically an accounting term. I don't want to make fun of synergies. Synergies are great.

  4. Or not. Again, don't rely too hard on the science here.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Matthew S Levine at mlevine51@bloomberg.net

To contact the editor on this story:
Zara Kessler at zkessler@bloomberg.net