note that this is just my personal opinion (and is in contrast to what seems to be the consensus), but i tend to believe that firms are more efficient in investing excess capital, to drive long-term growth, than shareholders, who have largely become about maximizing short-term profitability (and often at the expense of long-term growth).
and while i'd agree that firms often overpay in the hope of realizing ‘synergies’ that rarely exist, an acquisition is at least an investment in something tangible (ip, product lines, people, ...), which at least has the potential to generate value.. and while it may fail to do so (or do so sufficiently as to offset the costs involved), i view it as a better use of funds than direct returns to shareholders in the hopes (from a macro view) that they are able to efficiently reinvest in value-generating activities.
edit: just want to add that i realize that if one views a firm’s primary function as to maximize returns to shareholders (as many do, a fair view), then m&a, with its high probability of not paying-off, would be considered less favourable than a direct transfer like a dividend. i however tend to view a firm’s function more along the lines of ensuring its long-term survival and growth (which, in-turn, and ideally, should generate significant returns to shareholders, and drive innovation).
and while i'd agree that firms often overpay in the hope of realizing ‘synergies’ that rarely exist, an acquisition is at least an investment in something tangible (ip, product lines, people, ...), which at least has the potential to generate value.. and while it may fail to do so (or do so sufficiently as to offset the costs involved), i view it as a better use of funds than direct returns to shareholders in the hopes (from a macro view) that they are able to efficiently reinvest in value-generating activities.
edit: just want to add that i realize that if one views a firm’s primary function as to maximize returns to shareholders (as many do, a fair view), then m&a, with its high probability of not paying-off, would be considered less favourable than a direct transfer like a dividend. i however tend to view a firm’s function more along the lines of ensuring its long-term survival and growth (which, in-turn, and ideally, should generate significant returns to shareholders, and drive innovation).