The asset growth anomaly – when high asset growth companies tend to underperform in aggregate, while low asset growth companies tend to outperform – is well-known. S&P Global Market Intelligence’s Quantamental Research team published a paper on the asset growth anomaly in 2013: Behind the Asset Growth Anomaly.
In August 2016, the Quantamental Research team published a paper on factors that lead to underperformance in Mergers & Acquisitions deals: Mergers & Acquisitions: The Good, The Bad, and the Ugly. One of the factors that showed the strongest correlation with post-M&A underperformance was high pre-acquisition asset growth. Another factor cited as related to deal performance was the size of the deal – large acquisitions relative to the size of the acquirer tend to result in subsequent acquirer underperformance.
As an example, in August 2014, Tyson Foods (NYSE:TSN) acquired Hillshire Brands for $7.8 billion in cash. Although pre-acquisition asset growth was not high, Tyson’s total assets outstanding jumped nearly 100% as of its September 2014 year-end to $24 billion. Although there may be no direct correlation, on November 21, 2016, TSN reported Q4 2016 EPS that missed estimates by 17% and revenues that missed estimates by 3% (see the news announcement here). TSN’s stock price fell by 15% the same day. TSN also announced that its chief executive would be stepping down, although a succession plan was already in place (see the news announcement here).
Download the recent research paper: Mergers & Acquisitions: The Good, The Bad, and the Ugly