M&A's Overlooked Pitfall: The False Negative

Plenty of merger deals should never happen: Buyers are too often attracted to "false positives" in targets that are overvalued. Less noticed are the deals that get away, but shouldn't, because of "false negatives" -- an undervaluation based on outdated methodologies that leads to a losing bid. The true value of a target company can be determined only if the buyer looks beyond current core operations to include future potential, argue three M&A experts -- Alexander B. van Putten, a principal of consulting firm Cameron & Associates and a lecturer at Wharton; Mehrdad Baghai, managing director of Sydney, Australia-based Alchemy Growth Partners, a boutique advisory and venture firm, and a co-author of the book The Alchemy of Growth; and Ian C. MacMillan, a professor of innovation, entrepreneurship and management at Wharton.
"When will we finally close a deal?" The frustration around the management table at Bank X was palpable. The company had just been outbid by its archrival in the pursuit of a key competitor in its rapidly consolidating sector. It was déjà vu all over again.

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