The Motley Fool: Bigger Size, Lower Returns
In light of recent changes in my career I came across this article from The Motley Fool. In essense, the article looks at the right numbers, but at wrong angles. Here’s why.
- First and foremost, it’s hard to say what ROE would be if the acquisition did not occur. The acquisition happened for a reason.
- The market does have a limited size. One cannot grow beyond a certain size.
- Investments instead of going into development go into equity.
- Cancelled projects due to uncertainty drag down productivity.
- Integration activities may consume as much as the amount saved due to elimination of duplicate functions.
- Company name does have a value and it may be negative in the total value of a product. In other words, customers of the company being acquired may get disappointed and stop buying their products after the acquisition.
- Larger equity base for ROE.
- One time charges already mentioned in the article.