Though cheered by Wall Street, most mergers don't work out for buyers

Wall Street's big business -- helping companies buy other companies -- is hotter than it's been in years. Lost in the hubbub: a raft of studies showing that over time, most of the deals will not work out. The buyer, the apparent winner in the deal, will be worse off than before.

Deloitte Consulting’s Mark Sirower, a specialist in mergers and acquisitions, is among a number of scholars to compile evidence over several decades showing that, on average, the buyer ends up performing worse financially than its rivals over time. One study of 302 significant deals, for instance, found that "on average, acquirers underperformed their industry peers in providing returns to shareholders." Earlier studies showed that as many as 60% of all deals turned out poorly for the buyer, with the damage ranging from the marginal to the disastrous. Lists of famous mistakes usually start with the massive 2001 all-stock merger of Time Warner and America Online, originally valued at $164 billion a year earlier. The lists often include Sprint's $35-billion deal for Nextel Communications in 2005 and Ebay's $2.6-billion purchase of Skype in 2005.