The majority of major corporate acquisitions over the past five years are struggling to deliver on synergies or earnings growth.
The finding comes from Bloomberg, which analyzed 75 of the largest corporate acquisitions over the past five years with a combined value of almost $1.3 trillion for its article. Of those deals and in what the outlet calls a "grim new reality," less than half of the companies have lowered their leverage ratios since the acquisitions. Nearly 25 have a leverage ratio above 3.5, compared with 16 at the time of the acquisitions.
Bloomberg points to the $8.9 billion deal that VillageMD, which is majority owned by Walgreens Boots Alliance, made with its 2023 acquisition of Summit Health-CityMD as one example of a deal hailed as transformational that has struggled to deliver. At the time of its closing, the acquisition was poised to create one of the largest independent provider groups in the country.
"Twelve months later, the $8.9 billion takeover has struggled to deliver cost synergies and Walgreens's creditworthiness has just been cut to junk for the first time since its formation," according to Bloomberg. "The travails highlight a problem facing companies that relied on cheap credit to fund big mergers and acquisitions during the boom times: how to keep lofty M&A promises while servicing large debt loads in a new environment of higher rates and fading consumer demand."
Of the 75 companies analyzed, the average net debt to earnings before interest, taxes, depreciation and amortization stands at 2.7. Interviews with finance executives at firms that recently engaged in M&A express continued interest in transaction opportunities, but the deals will more likely be bolt-ons, according to Bloomberg.