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Cash Is Key for Successful Dealmaking

M&A expected to pick up this year after '09 slowdown

By Susan Kelly | Updated on January 12, 2010

A couple of big deals announced in recent weeks, including ExxonMobil’s $40 billion acquisition of XTO Energy, point to a rebound in merger and acquisition activity in 2010. As deal-making ramps up again, a study from KPMG suggests transactions done with cash fare better than all-stock deals or those paid for with a mixture of stocks and cash.

The KPMG study, conducted with the University of Chicago Booth School of Business, found the average all-cash deal returned 1% after one year and 2.9% after two years, while the average all-stock deal showed a negative 5.3% return after 12 months and a negative 9.8% return after two years. The outcome of transactions financed with a mixture of stock and cash fell in between those two extremes, according to the study, and posted a negative 3.8% return after one year and a negative 3.7% return after two years.

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