Valuations in M&A

For a long time, merger activity has had a reasonably predictable effect on the companies involved. The rule of thumb was that the seller's stock market value could be expected to increase by around 10 percent, while the acquiring company's value would decrease by about 5 percent. The last ten years of M&A activity have borne those numbers out.

But things seem to have changed a little bit on 2010. Last year, the markets saw mergers and acquisitions as having a positive effect on the valuations of both the buyer and the seller, according to research from McKinsey & Co. Over the past decade, 2005 was the only other year in which that was the case.

While the valuations applied to acquired companies have remained fairly steady over the years, the value of the acquirer has had some real ups and downs. In 2000, the average publicly traded company acquiring another one lost a whopping 17 percent of its value as a result of the deal.