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1/ A little story about juicy acquisition premiums.
One of the first stocks I ever owned was $MVL/Marvel Entertainment.
Because, duh. A proven long-term approach for monetizing entertainment IP with >5,000 distinct characters in the Marvel universe?
Yes please.
One of the first stocks I ever owned was $MVL/Marvel Entertainment.
Because, duh. A proven long-term approach for monetizing entertainment IP with >5,000 distinct characters in the Marvel universe?
Yes please.
2/ But one morning - on August 31, 2009 - I woke surprised to see my $MVL shares up nearly 30%.
@Disney had announced a deal to acquire the company.
$30/share in cash + 0.745 $DIS shares for each $MVL share owned -- a total value of $4 billion, or ~$50 per share at the time.
@Disney had announced a deal to acquire the company.
$30/share in cash + 0.745 $DIS shares for each $MVL share owned -- a total value of $4 billion, or ~$50 per share at the time.
3/ I was annoyed.
Not with the hefty single-day gain thanks to the acquisition premium. But with the fact that $DIS - a massive entertainment conglomerate with a $47B market cap at the time - was effectively scooping up one of my favorite mid-cap businesses at a bargain price.
Not with the hefty single-day gain thanks to the acquisition premium. But with the fact that $DIS - a massive entertainment conglomerate with a $47B market cap at the time - was effectively scooping up one of my favorite mid-cap businesses at a bargain price.
4/ So rather than wait for the cash-and-stock deal to go through, I sold my $MVL shares.
Can't recall what I did with the proceeds. But I do know I DIDN'T buy $DIS stock.
After all, the industry titan's potential returns couldn't rival $MVL's as a standalone business, right?!
Can't recall what I did with the proceeds. But I do know I DIDN'T buy $DIS stock.
After all, the industry titan's potential returns couldn't rival $MVL's as a standalone business, right?!
5/ I was VERY wrong.
Today $DIS market cap stands at $313B.
And it has returned more than 675% since the day I sold $MVL (including dividends), trouncing the S&P 500's perfectly solid 357% gain.
(via @ycharts)
Today $DIS market cap stands at $313B.
And it has returned more than 675% since the day I sold $MVL (including dividends), trouncing the S&P 500's perfectly solid 357% gain.
(via @ycharts)
6/ And with its hard pivot to steaming a la Disney+/Hulu/ESPN+/DTC positioning the company well for long-term growth even amid the pandemic, there's no end in sight to $DIS's outperformance even today, IMO.
7/ My takaway?
If one of your favorite companies is acquired - and it's bound to happen to you sooner or later if you invest in high-quality, long-term oriented stocks - don't automatically assume your opportunity for market-beating gains has been effectively dashed.
If one of your favorite companies is acquired - and it's bound to happen to you sooner or later if you invest in high-quality, long-term oriented stocks - don't automatically assume your opportunity for market-beating gains has been effectively dashed.
8/ Look closer to not only understand the terms of the deal, but also the potential for the combined businesses to outperform as a single, larger publicly traded entity.
Don't underestimate the ability of winners like $DIS to keep on winning with new tools in their arsenal.
Don't underestimate the ability of winners like $DIS to keep on winning with new tools in their arsenal.
9/ Recent compelling examples include:
$AMD acquiring $XLNX: Complementary product portfolios in high-performance computing
$CRM acquiring $WORK: Potential to "transform the way we work" as a new engagement layer in the business tech stack.
$AMD acquiring $XLNX: Complementary product portfolios in high-performance computing
$CRM acquiring $WORK: Potential to "transform the way we work" as a new engagement layer in the business tech stack.
10/ To be clear, this isn't a blanket suggestion to blindly assume all acquisitions result in combined companies worth owning.
There are plenty of deals that don't work out - whether because the acquirer overpaid, the business combo proved unfruitful, or a slew of other reasons
There are plenty of deals that don't work out - whether because the acquirer overpaid, the business combo proved unfruitful, or a slew of other reasons
11/ But in all cases it's worth your time to think before you sell right away.
Because sticking around to enjoy the fruits of the acquisition might just be the most attractive course of action.
Because sticking around to enjoy the fruits of the acquisition might just be the most attractive course of action.
