Actually megadeals are bad

For all the short-term pressure put on drug companies to make splashy acquisitions, history suggests the biggest of mergers are almost always punished by the market.

SVB Leerink took a look at 10 years of biopharma acquisitions, more than 160 deals in total, and concluded that outsized checks perform the worst. If a company spent more than $50 billion on another firm, its stock price fell by 17% on average after three months. By contrast, companies that spent less appreciated by about 5% over the same time period.

There are loads of potential caveats — major buyouts often come with major debt, and companies that engineer such mergers are often dealing from a position of weakness — but the data do provide a counterweight to Wall Street conventional wisdom. Investors often clamor for so-called transformational M&A and scoff at small deals, but they’re apparently loath to reward companies that actually take their advice.