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Is there a better way to increase shareholder wealth?

Mergers and acquisitions (M&As) have roiled the U.S. utility industry in recent years as corporate leaders have responded to dramatic changes in their industry by combining with their peer companies. Between 1996 and 2000, U.S. utilities announced over $400 billion worth of transactions involving domestic companies alone, according to research from E Source. This figure, while staggering, does not include transactions between a U.S. utility and an overseas utility; those deals exceeded $75 billion in value during the same five-year period.

As the industry tries to digest its many M&A transactions, and potentially ponder future deals, a word of caution is in order: M&As are a tool, not a strategy, and there are many ways that the tool can fail to deliver the expected benefits.

Numerous management consulting firms—including McKinsey, Mercer, and A.T. Kearney, among others—have analyzed M&As, and concluded that they rarely add value to acquiring firms. The reasons these deals have died are remarkably consistent across many industries: