Empirical Results  591 1. Programmatic acquirers9 completed many acquisitions. 2. Large-deal companies completed at least one deal that was larger than 30 percent of the acquiring company’s value. 3. Organic companies conducted almost no M&A. 4. Selective acquirers did not fit into the other three categories. Exhibit 31.5 shows the results, including median total shareholder returns (TSRs) versus peers, along with the 25th and 75th percentiles, and the num- ber of companies outperforming peers. Programmatic acquirers performed best, with a median outperformance of 0.9% TSR per year. The large-deal companies performed the worst, consistent with the studies of announce- ment effects. That said, the medians conceal important details. Note that the band of 25th to 75th percentiles is very large and overlaps across the different acqui- sition strategies. Of all the categories, the distribution of the programmatic acquirers has the most positive skewing, and these acquirers also have the highest percentage of companies outperforming. Large deals skewed heav- ily negative. The case of organic companies is interesting for its very wide distribution of results. This is not surprising, since the sample includes fast- growing, younger companies with high TSRs that may think it too early to embark on much M&A, as well as declining or troubled companies focused on managing decline. We also found that the results varied by industry. For EXHIBIT 31.5  Success Rates of Observed Acquisition Strategies 1,645 nonbanking companies, 2007–2017, % –2 0 2 4 6 8 –4 –6 –8 Median excess total shareholder returns (TSR),1 December 1999–December 2012 Probability of excess return greater than 0 Strategy Large deal 43 –1.6 Selective 49 –0.1 Programmatic 56 0.9 Organic 45     –0.6 Median 25th to 75th percentile 1 Outperformance against global industry index for each company. Source: Dealogic. 9 We define programmatic acquirers as companies that make more than two small or midsize deals in a year. 592  Mergers and Acquisitions example, large acquisitions tended to be more successful in slower-growing, mature industries, where there is great value to reducing excess capacity. By contrast, large deals in faster-growing sectors underperformed significantly. In those companies, the inward focus required to integrate a large acquisition diverted management’s attention from the need for continual product inno- vation. Only the programmatic acquirers tended to outperform across most industries. The results are also consistent with 2017 research by Fich, Nguyen, and Officer, who found that large companies acquiring small companies tend to create more value than when they buy large companies.10 The news is not all bad for large acquisitions. Researchers have identi- fied specific factors that differentiate successful deals from unsuccessful ones, based on returns to the acquirer’s shareholders. This research points to four important characteristics: 1. Strong operators are more successful. According to empirical research, ac- quirers whose earnings and share price grew at a rate above the in- dustry average for three years before the acquisition earn statistically significant positive returns on announcement.11 Another study found similar results using the market-to-book ratio as a measure of corporate performance.12 2. Low transaction premiums are better. Researchers have found that acquir- ers paying a high premium earn negative returns on announcement.13 3. Being the sole bidder helps. Several studies have found that acquirer stock returns are negatively correlated with the number of bidders; the more companies attempting to buy the target, the higher the price.14 4. Private deals perform better. Acquisitions of private companies and sub- sidiaries of large companies have higher excess returns than acquisi- tions of public companies.15 10 Eliezer M. Fich, Tu Nguyen, and Micah S. Officer, “Large Wealth Creation in Mergers and Acquisi- tions” (paper presented at American Finance Association 2013 annual meeting, San Diego, CA, January 4–6, 2013, revised November 8, 2017), available at http://dx.doi.org/10.2139/ssrn.2020507. 11 R. Morck, A. Shleifer, and R. Vishny, “Do Managerial Objectives Drive Bad Acquisitions?” Journal of Finance 45 (1990): 31–48. 12 H. Servaes, “Tobin’s q and the Gains from Takeovers,” Journal of Finance 46 (1991): 409–419; and Fich et al., “Large Wealth Creation in Mergers and Acquisitions.” 13 M. L. Sirower, The Synergy Trap (New York: Free Press, 1997); and N. G. Travlos, “Corporate Takeover Bids, Methods of Payment, and Bidding Firms’ Stock Return,” Journal of Finance 42 (1987): 943–963. The result was statistically significant in Sirower but not significant in Travlos. 14 Morck et al., “Do Managerial Objectives Drive Bad Acquisitions?”; and D. K. Datta, V. K. Narayanan, and G. E. Pinches, “Factors Influencing Wealth Creation from Mergers and Acquisitions: A Meta- Analysis,” Strategic Management Journal 13 (1992): 67–84. 15 See, for example, L. Capron and J. Shen, “Acquisitions of Private versus Public Firms: Private Infor- mation, Target Selection and Acquirer Returns” (INSEAD Working Paper Series, 2005); and P. Draper and K. Paudyal, “Acquisitions: Public versus Private,” European Financial Management 12, no. 1 (2006): 57–80.