The Six Types of Successful Acquisitions

Companies advance myriad strategies for creating value with acquisitions—but only a handful are likely to do so.

Marc Goedhart, Tim Koller, David Wessels

Our research shows that even if short-term investors cause day-to-day fluctuations in a company’s share price and dominate quarterly earnings calls, longer-term investors are the ones who align market prices with intrinsic value.

Marc Goedhart, Tim Koller, David Wessels

As an illustration of how executives get caught up in a short-term EPS focus, consider our experience with companies analyzing a prospective acquisition. The most frequent question managers ask is whether the transaction will dilute EPS over the first year or two. Given the popularity of EPS as a yardstick for company decisions, you might think that a predicted improvement in EPS would be an … [ Read more ]

Marc Goedhart, Tim Koller, David Wessels

Creating shareholder value is not the same as maximizing short-term profits—and companies that confuse the two often put both shareholder value and stakeholder interests at risk. Indeed, a system focused on creating shareholder value from business isn’t the problem; short-termism is.

Marc Goedhart, Tim Koller, David Wessels

The guiding principle of business value creation is a refreshingly simple construct: companies that grow and earn a return on capital that exceeds their cost of capital create value.

Do Fundamentals—or Emotions—Drive the Stock Market?

Emotions can drive market behavior in a few short-lived situations. But fundamentals still rule.

Editor’s Note: one of the least compelling defenses of efficient or rational markets I have read, but still the topic and specific examples and issues discussed are worthy of consideration.

The Five Types of Successful Acquisitions

Companies advance myriad strategies for creating value with acquisitions—but only a handful are likely to do so.

How Inflation Can Destroy Shareholder Value

If inflation rises again, companies will have to do more than just match it to keep up—they’ll have to beat it.

Multimedia bonus: An interactive exhibit allows you to see over time how much a company’s earnings must increase in order to keep cash flow stable.

The Right Role for Multiples in Valuation

Discounted cash flow valuations are the best way to assess the value of projects, but they are only as accurate as the forecasts behind them. A careful review of a company’s multiples–and those of its competitors–can help verify those underlying forecasts. However, executives must be critical consumers of published multiples and probe unexpected differences.

Do Fundamentals or Emotions Drive the Stock Market?

Dramatic stock market gyrations during and since the 1990s have encouraged advocates of behavioral-finance theories, which hold that market values can systematically deviate from economic fundamentals. Evidence shows, however, that such events are limited and that market values eventually return to fundamental levels.