The Backward Incentives in M&A Transactions

Backward incentives in M&A are perpetuating anticompetitive standards that have to change. At the highest levels of finance, mergers and acquisitions (M&A) operate on a flawed incentive structure. Dealmakers and brokers are rewarded for inflating the value of equities to secure massive acquisition prices, pocketing large fees while leaving acquiring firms to grapple with overvalued assets that often plummet in value post-transaction.

Here’s how it works today: A company with a market capitalization of $20 billion might be targeted for acquisition. To close the deal, the buyer must offer a significant premium — often 50% or more — leading to an acquisition price of $40–60 billion. Brokers and dealmakers take their 1% cut, pocketing hundreds of millions of dollars, regardless of whether the price paid is sustainable or aligned with the company’s true value. The acquiring firm, meanwhile, faces the uphill battle of rebuilding value after the inevitable post-acquisition price drop.

This system benefits intermediaries and existing shareholders but rarely delivers long-term value for the acquiring firm. Worse, it inflates market valuations, perpetuating a cycle of inefficiency and risk.

A Counterintuitive Proposal: Rewarding Value Creation Over Value Inflation

What if the incentives were reversed? Instead of rewarding brokers and dealmakers for driving up prices, banks and acquirers could incentivize professionals who strategically devalue companies prior to acquisition — and then increase their value post-transaction through thoughtful restructuring and management.

Take Snapchat as an example. With a current market capitalization of $20 billion, an acquisition under the traditional model would require an offer of $40–60 billion, generating $600 million or more in fees for brokers. But what if I could demonstrate that Snapchat is overvalued, secure it for under $10 billion, and immediately implement a plan that doubles or triples its value over time? This approach could save the acquiring firm tens of billions upfront and ensure sustainable growth. Shouldn’t someone capable of creating such value be rewarded with a fee far greater than the $600 million a dealmaker would earn for inflating the price?

This model aligns incentives with outcomes, reduces systemic market inflation, and prioritizes long-term value creation over short-term profits.

Addressing Regulatory Concerns

I fully acknowledge the regulatory hurdles that exist in making such deals as an unlicensed or unregistered individual. The financial industry is governed by a complex framework designed to protect investors, ensure transparency, and maintain market integrity. Licensing requirements, broker-dealer regulations, and fiduciary obligations create barriers for individuals like myself to directly engage in M&A transactions. However, these regulations often exclude innovative thinkers capable of delivering immense value, simply because they lack the formal credentials.

To address these concerns, I see an opportunity to partner with an established institution like JPMorgan, or a similar entity. In such a partnership:

• The bank would handle the transaction, regulatory compliance, and fund transfers, ensuring all legal and procedural requirements are met.
• My role would focus on leading negotiations, identifying value opportunities, and implementing strategies for post-acquisition success, without taking on direct liability.

This joint-venture approach would allow me to operate within the regulatory framework while contributing my unique insights and expertise. By combining the resources and compliance capabilities of a major bank with my vision for transformative deal-making, we could redefine how value is created in M&A.

Why the Current System Needs Change

The current incentive structure rewards value inflation at the expense of long-term growth, creating systemic inefficiencies and market distortions. By flipping the script and rewarding those who devalue companies for sustainable acquisitions, we can:

• Reduce acquisition risks by aligning prices with actual value and future potential.
• Free up capital for reinvestment and operational improvements.
• Discourage speculative bubbles and market inflation.
• Create a system that prioritizes outcomes over appearances.

Partnering for Change To Correct Markets

I am not naïve about the challenges of working within a heavily regulated system, nor do I underestimate the resistance to change from those who benefit from the status quo. However, I believe that with the right partnerships and trust from established institutions, I can lead the effort to create smarter, more sustainable M&A deals. By working with a partner like a major investment bank, who handles the compliance and transactional elements, I could focus on what matters most: creating long-term value for acquirers and disrupting an outdated, counterproductive incentive structure.

The time has come to rethink the way we approach M&A. It’s not just about what’s possible within the current framework but about envisioning what could be achieved if we dared to innovate.