Nothing sets the market's pulses racing more than the prospect of M&A. Investment bankers rake in millions from advising on takeovers every year. And humble shareholders are usually more than happy to see one of their shares on the receiving end of a juicy takeover bid. Newspapers can't get enough of M&A rumours, and in fact, the IC keeps a close eye on M&A activity in our Takeovers pages. A few weeks ago, we wrote .
But, as we wrote at the time, M&A has often proved to be a sure fire way to destroy value, unless you've been shrewd or lucky enough to snap up shares in the target. Bigger doesn't always mean better, and often the financial benefits of mergers are overstated by the management teams trying to push them through, and the difficulties of integrating companies underestimated by bullish executives. "I always said that mega-mergers were for megalomaniacs," quipped advertising guru David Ogilvy. One only needs to look in the direction of Royal Bank of Scotland for evidence of how big deals can backfire.
A better bet may be to look for companies that are likely to split in two. That's because so-called demergers are far less risky than trying to join two unwieldy – and sometimes unwilling – partners together. Time and time again, demergers have been proven to create long-term value for their shareholders, when time and time again M&A has been of questionable value.
