Saturday, September 28, 2013
Mergers Hurt Credit Rating
Standard & Poor's recently analyzed
101 mergers and acquisitions worth more than $5 billion since 2000 and
found that these mergers and acquisitions can hurt credit ratings. In
fact, 53 of the 101 transactions resulted in a credit rating that
dropped at least one notch. Twenty one of the transactions resulted in
no credit change and 27 resulted in a higher credit rating. The risks
cited by S&P in the downgrades include weaker pro forma credit
measures, reduced free cash flows, and increased business risk for the
combined firm. It appears that many acquirers are borrowing too much in
paying for acquisitions, at least according to S&P.