THE death knell for corporate America’s greatest individual experiment in mergers and acquisitions sounded in November 2021 when General Electric announced its intention to split in three. A thousand deals were struck by Jack Welch, its notoriously gung-ho boss, who ran the American industrial and financial giant between 1981 and 2001. The pace did not slacken under his successor, Jeffrey Immelt. The result has been a monumental destruction of shareholder wealth. The firm’s market value peaked at US$594bn in 2000. Today it is a relatively measly US$83bn.

This lesson notwithstanding, bosses just cannot shake the need to shake hands. In 2021 the urge reached fever-pitch: a record US$5.9trn-worth of deals were announced globally, US$3.8trn by operating companies and the balance by private-equity funds and special-purpose acquisition companies. Competition for assets was fierce and due diligence frenetic. The cost of capital was historically low and purchasers paid top-notch prices, at a record median valuation of 15.4-times earnings before interest, tax, depreciation and amortisation (EBITDA), according to Bain, a consultancy. The number of deals for highly-valued technology firms soared, accounting for a quarter of the total volume.

If history is any judge, many of these deals will destroy value. It is easy to identify disastrous deals: large goodwill write-downs or even bankruptcy are useful signposts. But measuring the performance of the average deal is tough; relative share price performance is a quick but noisy measure and asking a counterfactual “what if” question is crystal-ball stuff. A recent review of academic literature by Geoff and J Gay Meeks at Cambridge University estimates that only a fifth of studies conclude that the average deal produces higher combined profits or increases the wealth of the acquirer’s shareholders. McKinsey, another consultancy, reckons that firms pursuing large deals between 2010 and 2019 had only a coin-flip chance of creating excess shareholder returns. Enough to put average Joes off dealmaking, but not budding Neutron Jacks.