The Deal You DIDN’T Close May Be the Best Decision of Your Career

This article is for informational purposes only and does not constitute investment or legal advice. Decisions on mergers and acquisitions should be made with due regard to the specific circumstances and with the involvement of qualified professional advisers.

Part 1. An Analytical Deconstruction of the “Winner’s Curse”: Empirical Evidence and the Psychology of Value Destruction

Introduction: The Winner’s Paradox in the Architecture of Modern Capital

In today’s corporate culture—saturated with imperatives of growth and expansion—walking away from a major M&A deal is often interpreted as strategic indecision, weakness, or a lack of ambition. CEOs of public companies, under relentless pressure from quarterly reporting, and owners of Ukrainian businesses racing to “keep up” with the redistribution of markets, frequently view inorganic growth as the most effective tool for instant transformation.

Investment bankers—whose compensation is directly linked to closing transactions (success fee)—and business media hungry for loud headlines about the creation of new “national champions” shape an ecosystem where deal completion (closing) is equated with unconditional success, while exiting negotiations (walking away) is treated as defeat.

Yet behind the façade of celebratory press releases and promises of “transformational synergies” lies a fundamental economic anomaly: in competitive bidding for assets, the winner typically loses.

Research shows that companies that lose competitive auctions systematically outperform the winners by 25–30% in returns over a three-year horizon. This is not sampling error and not coincidence, but a structural effect known in behavioral economics as the Winner’s Curse. CEO overconfidence and the “win at any price” effect destroy value faster than market crises.

This material is not merely a statistical overview. It is a practical guide for business owners, CEOs, and investment directors that translates the scientific findings of the National Bureau of Economic Research (NBER) and NYU Stern into actionable decision-making. We will unpack why “war discounts” can be a trap, how ego destroys capital, and why the discipline of saying “no” creates more value than aggressive expansion.

Empirical Verification: Why Do Losers Win?

To overcome the cognitive resistance to the thesis that “retreat is more profitable than victory,” we need hard statistics—stripped of the marketing narratives of investment memoranda. Intuition suggests the winner gets the asset and grows, while the loser stagnates. The data says otherwise.

1. “The M&A Failure Trap”: Evidence from 40,000 Transactions

The foundation of this analysis is the monumental study by Professors Baruch Lev (NYU Stern School of Business) and Feng Gu (University at Buffalo), The M&A Failure Trap (Wiley, 2024). The authors analyzed an unprecedented dataset of 40,000 transactions over the past 40 years. Their conclusion is categorical and unambiguous: 70–75% of corporate acquisitions fail to achieve their stated financial goals.

Most deals destroy value for the buyer’s shareholders. This manifests in:

• A decline in return on invested capital (ROIC) after the merger.
• Negative organic sales growth (integration chaos distracts from the core business).
• Large goodwill impairments—effectively an admission that the money was wasted.

2. Regression Discontinuity Design: Proof by Contradiction

Critics might object: “Perhaps losers outperform simply because they were better companies to begin with.” To eliminate that factor, consider the foundational paper by Ulrike Malmendier, Enrico Moretti, and Florian Peters, Winning by Losing, published in the Review of Financial Studies.

The researchers used a rigorous scientific method—Regression Discontinuity Design. They analyzed a sample of 231 large transactions where the outcome was decided at the last moment by a minimal price difference. This made it possible to compare the “Winner” (Acquirer) and the “Near Winner” (Losing Bidder), which were virtually identical—up to the final envelope—in financial health, strategy, and management quality.

The results reveal a shocking divergence:

• Long-term performance (TSR): Losing bidders systematically outperform winners by 24–30% in total shareholder return over the three years following the deal. In the international sample, the gap is around 14%, but in highly competitive markets (US, EU) it reaches the maximum.
• Relief effect: Markets often respond with rising share prices to news that a company walked away from a deal or lost it. Investors literally “breathe a sigh of relief,” recognizing that management did not succumb to emotions and preserved capital.
• Investment flexibility: The losing party preserves a strong balance sheet and managerial focus. Instead of spending years on painful post-merger integration (PMI) and servicing acquisition debt, the “loser” reallocates capital to R&D, CAPEX, or share buybacks.

This 30% gap is the price the market assigns to discipline. The winner, by contrast, gets an asset burdened with a control premium (typically 30–50% above market price) and integration risks that rarely pay off in reality.

The Anatomy of the Winner’s Curse

In M&A, the Winner’s Curse is not a metaphor—it is a mathematical inevitability in a common-value auction.

Auction Mechanics and the “Noise” of Valuations

Every asset (a plant, an IT company, an agroholding) has an objective intrinsic value tied to its future cash flows. But no bidder knows it precisely—everyone estimates with a certain error (“noise”). This noise depends on the quality of due diligence, data availability, and analyst experience.

Imagine an auction for an asset with a true value of $100 million.

• Bidder A (the pessimist) values it at $90 million.
• Bidder B (the realist) values it at $100 million.
• Bidder C (the optimist) values it at $115 million.

In a competitive auction, the winner is the one who offers the highest price. Bidder C wins.

Paradox: You win the auction only because your valuation was the most optimistic among all competitors. Statistically, that means the winner is the bidder with the largest upward valuation error. You pay $115 million for an asset worth $100 million. At closing, you have already destroyed $15 million of value—even if integration goes perfectly. That is the Winner’s Curse.

Factors that intensify the curse:

• Number of bidders: The more bidders, the higher the probability that someone’s valuation error will be extremely high. In “hot” auctions, price detaches from reality exponentially.
• Uncertainty: The harder the asset is to value (e.g., an early-stage startup or a plant in a war-risk zone), the higher the dispersion of estimates.
• Information asymmetry: If the seller knows something critical about the asset that buyers do not (Akerlof’s “lemons” problem), the auction winner almost certainly buys a “pig in a poke.”

The Psychology of Destruction: Hubris and FOMO

If auction math and historical statistics are so clear, why do smart, experienced CEOs and owners keep doing value-destructive deals? The answer lies in behavioral finance. The two main drivers of value destruction are hubris and FOMO (fear of missing out).

1. The Hubris Hypothesis

Back in 1986, Richard Roll formulated a hypothesis that remains relevant today: managers overpay for assets because they sincerely believe in their own brilliance. They are convinced they can manage the acquired asset better than the current management—and better than the market. A typical internal monologue of such a CEO:

“The market is undervaluing this asset because the current owners are inefficient. We know how to fix it. We’ll implement our processes, our culture, and margins will soar.”

Malmendier and Tate (2008) show a direct correlation: CEOs who receive prestigious awards (“Person of the Year”) or frequently appear on business magazine covers are more likely to pursue major acquisitions and pay higher premiums. Their overconfidence makes them ignore risk signals and overestimate synergy.

2. Fear of Missing Out (FOMO)

The second powerful driver is emotional pressure.

“Now or never.” “If we don’t buy it, a competitor will.” “The window is closing.”

Loss aversion is evolutionarily stronger than the desire to gain. The thought that a competitor will buy the asset and become stronger causes CEOs almost physical pain. Under FOMO, the focus shifts from “What is it actually worth?” to “How much do we need to offer to win?” The pressure to close “while they’re still selling” disables critical thinking. Investment committees become a formality where numbers are retrofitted to an already-made emotional decision. And this is exactly where the discipline of walking away becomes the key competitive advantage.

Part 2. The Ukrainian Context: The “War Discount” Illusion and the Financial Engineering of Saying No

Risk Specifics: M&A in a Minefield

In mature markets like the US and Europe, the Winner’s Curse is driven primarily by psychological factors and overestimated synergies. In the Ukrainian reality of 2024–2026, it becomes existential. For Ukrainian businesses with revenue of $2–20 million seeking growth points or ways to save capital, an M&A mistake is not merely lower returns—it is often a total loss of liquidity.

At LigLex, we see three specific traps that create the illusion of a good deal but, in practice, become a graveyard for capital.

1. The “War Discount” Mirage

Today’s Ukrainian M&A market is a buyer’s market. Assets that were valued at 5–7x EBITDA before 2022 are now offered at 2–3x, and sometimes at 1x EBITDA + assumption of debt. For a cash investor, this looks like the “sale of the century.” A reflex kicks in: “Buy while it’s cheap. The war will end and the asset will multiply in value.”

But this discount is not a gift. It is the market price of enormous—often hidden—risks that cannot be uncovered by a standard Legal DD.

• Hidden obligations (off-balance-sheet liabilities): Under wartime conditions, many companies switched to “manual” finance management. Supplier debts, “gentlemen’s agreements” with creditors, or tax optimizations are often not reflected in official balance sheets. Buying an asset for $1 million, you may inherit $3 million in hidden obligations that surface a month after closing.
• Human capital collapse: The main asset of Ukrainian business today is not machinery—it is people. Buying a plant, you may discover that 30% of key technical personnel have been mobilized or relocated abroad, and the chief engineer who holds operations together is planning to resign. A price discount does not compensate for the loss of operating capability.

Conclusion: In wartime, a low price is not upside—it is compensation for the risk of total downside. The winner of an auction for a “cheap” asset often buys a ticket to a war with circumstances—a war you cannot win.

2. The Compliance Trap: DAC6, DAC7, and Capital Transparency

For Ukrainian businesses that structure asset ownership through foreign jurisdictions (Cyprus, Estonia, Luxembourg, the Netherlands, the UAE) or plan to enter EU markets, European regulation becomes a critical factor. Many owners still live in the 2010s paradigm: “The main thing is to agree in Ukraine, and we’ll somehow paper it in Europe.” That is a fatal mistake.

The entry into force of EU directives on administrative cooperation (DAC—Directive on Administrative Cooperation) radically changed the M&A landscape.

• DAC6 (Disclosure of cross-border arrangements): Any deal with hallmarks of aggressive tax planning is subject to automatic disclosure. If you buy a Ukrainian asset that historically used “grey” profit extraction schemes and integrate it into your transparent European holding, you infect the entire structure. A dirty asset makes a clean buyer toxic.
• DAC7 (Digital platform transparency) and DAC8 (Crypto-assets): If the target used cryptocurrency for settlements (common in Ukraine to bypass FX controls) but cannot offer source-of-funds proof under AML/KYC standards, the deal becomes a red flag for any Western bank.

A practical example: An investor acquired a Ukrainian IT company at a discount. During integration, it turned out that part of salaries had been paid via USDT without proper compliance. Result: a European correspondent bank blocked the accounts of the buyer’s entire group until clarification. A deal meant to accelerate growth paralyzed the core business for six months. This is a classic case of how the absence of “walk-away discipline,” combined with ignorance of regulatory trends, destroys value.

The Financial Engineering of Saying No: Excel’s Collapse and Monte Carlo’s Triumph

How do you make a balanced “buy or not” decision under total uncertainty? Traditional financial modeling tools used by 90% of Ukrainian CFOs are not just useless today—they are harmful.

Why DCF Lies

A classic discounted cash flow (DCF) model requires point inputs: revenue growth, discount rate, margins. In a stable economy, that works. In a country at war, it is coffee-ground fortune-telling. When an analyst inputs “10% revenue growth,” they ignore that there is a 30% probability revenue will drop by 50% (due to blackouts) and a 10% probability the plant will be destroyed. Excel’s linear model creates a false sense of control. It produces one elegant NPV figure (e.g., $5 million) that hypnotizes the CEO. “Excel doesn’t lie,” they think. But Excel calculates what you put into it. And if you insert optimistic assumptions, the model will justify any stupidity.

Alternative: Probabilistic Modeling (Monte Carlo)

Instead of guessing the USD exchange rate or inflation in three years, at LigLex we use Monte Carlo simulation. We set not a single number, but a probability range for each key factor:

• Exchange rate: 42 to 60 UAH/USD, normal distribution.
• Workforce availability: 40% probability of losing 20% of headcount.
• Logistics: 15% probability of border closures for three months.
• Energy: 80% probability of four hours/day downtime.

The algorithm then runs 10,000 virtual simulations of the future. In one “universe” everything is fine; in another the exchange rate is 60 and borders are closed.

The result changes the paradigm: instead of a single number “NPV = $5 million,” the CEO gets a probability distribution:

• “The probability of losing invested capital is 45%.”
• “The probability of earning the promised 30% per year is only 12%.”
• “The median scenario is breaking even after 7 years.”

When the owner sees that the probability of failure is four times higher than the probability of success, the “magic of the deal” disappears. FOMO is replaced by rational fear. Monte Carlo provides the mathematical basis for that very “hard NO” that saves the company.

“The best way to avoid the Winner’s Curse is to stop believing in point forecasts and start thinking in risk ranges.”

The Strategic Value of Liquidity (Optionality)

Another aspect often overlooked: money not spent on a deal does not sit dead. It creates optionality. In conditions of high volatility (as in Ukraine now), cash carries a premium value.

• If you bought an asset and were wrong, you are locked into illiquid property that requires subsidies.
• If you preserved cash, you have the option to enter a deal in six months—when the situation is clearer—or to buy a competitor who overreached and is now sold at a 90% discount (a distressed asset).

Refusing a deal today is purchasing an option on a better deal tomorrow. In finance, this is called Real Options Value. Companies that understand the value of waiting outperform those who rush to “get closure.”

Part 3. The Anatomy of Saying No: Case Studies and Decision Protocols

Lessons from History: When Retreat Becomes Triumph

The Winner’s Curse is best internalized through examples where billions of dollars and the reputations of great CEOs were at stake. These cases became classic business-school material, but their lessons are universal—from an oil-and-gas giant to a Ukrainian agri-trader.

1. Chevron vs. Occidental (The Anadarko Battle, 2019): The Perfect Walk-Away

In 2019, oil giant Chevron announced the purchase of Anadarko Petroleum for $33 billion. The deal seemed done; the strategy approved; the press releases prepared. Suddenly, Occidental Petroleum (OXY) entered the game, outbidding Chevron with an aggressive $38 billion. Chevron CEO Mike Wirth faced the classic “Winner’s” dilemma: raise the bid (start a price war to save face) or walk away, admitting defeat. Pressure from markets, media, and Chevron’s own board was immense: “Chevron is losing leadership!” “We’re handing a strategic asset to a rival!”

But Wirth did what is now considered a benchmark of managerial discipline. He said:

“We will not dilute our returns just to get a deal done. Capital discipline is our priority.”

Outcome:

• Chevron (the loser): Walked away and received a $1 billion breakup fee from Anadarko simply for not buying the asset. Preserved a pristine balance sheet and investor trust. Later, in the 2020 crisis, they bought Noble Energy at a far better price.
• Occidental (the winner): Won the “prize” but loaded itself with toxic debt (including $10 billion from Warren Buffett at punitive 8% interest). OXY shares fell 70% in the subsequent years, and the company hovered near bankruptcy trying to digest an overpriced bite.

Conclusion: $1 billion for the word “No.” The most profitable “non-deal” in history.

2. Disney vs. Comcast (The Fox Battle, 2018): A Pyrrhic Victory

Disney and Comcast clashed over the assets of 21st Century Fox. In a frantic bidding race, the price jumped from an initial $52 billion to a final $71.3 billion. Comcast stopped in time, recognizing the price had crossed a rational boundary, and exited the race (later buying Sky). Disney “won,” paying an enormous premium. Although the asset was strategically important for launching Disney+, for years after the deal Disney suffered from debt burden and integration complexity, which weighed on the stock. The market punished the winner with stagnation while competitors grew.

A Ukrainian Case: The Price of “Winning” Under Uncertainty

How do these principles work in Ukrainian mid-market reality? Consider an anonymized practical case (based on aggregated market data from 2023–2024).

Context: Two Ukrainian logistics companies (Alpha and Beta) competed to acquire a third player (Gamma), which had fallen into difficulty after losing warehouses in the east. Asset price: $5 million (a 60% discount to the pre-war valuation).

• Company Beta (the winner): Moved fast. The CEO saw an opportunity to double the fleet for half the price. “There are risks, but the price covers everything.” The deal closed in three weeks.
• Company Alpha (a LigLex client): Applied the “Walk-Away Discipline” protocol. We conducted Monte Carlo modeling and an in-depth compliance audit.

What Alpha’s audit found:

• Technical debt: 40% of Gamma’s fleet required major repairs, and spare parts were not available.
• Legal landmine: The land under the key logistics hub was pledged to a bank in liquidation (risk of losing the asset).
• People risk: Gamma’s COO planned to emigrate immediately after receiving the sale bonus.

Result after one year:

• Company Beta: Faced a cash gap. The “cheap” fleet stopped operating and required $2 million of investment that the company didn’t have. The creditor bank initiated alienation of the land. The operating profit of Beta’s core business went into patching the acquired asset. Growth stopped.
• Company Alpha: Declined the deal. The saved $5 million was invested in building a compact hub near the Polish border and process automation. ROIC increased by 25%.

Alpha lost the battle for the asset—but won the war for efficiency.

Practical Guide: How to Institutionalize “Walk-Away Discipline”

If 70% of deals fail, how do you land in the successful 30%—or walk away in time from the failing 70%? You must institutionalize skepticism. At LigLex, we help clients implement the following four defenses against bad decisions.

1. The Pre-Mortem Method

Developed by psychologist Gary Klein and popularized by Nobel laureate Daniel Kahneman, this method is the best antidote to group euphoria. It is conducted before signing binding documents (Term Sheet).

Protocol:

• Gather the core team in one room.
• Prompt: “Imagine we’ve moved three years into the future. The deal happened. But it turned into a total catastrophe. We lost money, reputation, key people. That is a fact.”
• Task: “Write the story of this failure. Why exactly did it happen?”
• The team writes not about risks (“might happen”), but about completed facts (“it happened because…”).

This psychologically frees people’s hands. Employees who feared being labeled pessimists now compete to find the most fatal cause. Issues emerge that were previously unspoken: a toxic seller culture, incompatible IT systems, hidden legal conflicts.

2. The Red Team Protocol (Devil’s Advocate)

In the investment committee, there must be a dedicated role (or an external team—e.g., LigLex consultants) whose sole job is to kill the deal.

• Their KPI depends not on closing (success fee), but on the quality of counterarguments found.
• They attack the financial model, stress-test every assumption, dig for compromising facts. If the deal survives a professional “Red Team” assault, it truly has a chance.

3. A Hard Walk-Away Price

Auction psychology forces overpayment in the heat of competition. The decision must be made “on shore.” Before negotiations start, the board approves a document:

“The maximum price for this asset is $X. At $X + $1 we stand up and walk away. Calling a shareholder to approve a higher price is prohibited.”

This removes emotional pressure from negotiators. They have no option but to walk away if the price is exceeded. That is discipline.

4. Reference Class Forecasting

Instead of asking, “How unique is this deal?” (inside view), ask: “What happened on average in the last 20 similar deals in our industry?” (outside view). If statistics say 8 out of 10 acquisitions in the agri-sector end in write-offs, what is the probability your deal will be the exception? Ignoring base rates is the core forecasting error.

Conclusion: The Courage Not to Act

In a world obsessed with action, inaction requires the greatest courage. Saying “Yes” to a deal is easy—champagne, press headlines, and the feeling of moving forward. Saying “No” is hard—it is admitting limits, doing the boring work of improving current processes, and risking being seen as conservative.

But it is that “No” that creates real value. Warren Buffett—who has done more successful deals than almost anyone in history—keeps an empty wastebasket on his desk labeled “Too Hard.” He takes pride not in the deals he completed, but in the hundreds he refused.

For Ukrainian business today, every dollar of capital is a resource for survival and future recovery. Spending it to satisfy ambition or fear of missing out is a criminal luxury. Use a scientific approach. Model probabilities with Monte Carlo. Conduct Pre-Mortems. And remember: the best deal of your life may be the one you never closed.

FAQ

Is it true that most M&A deals destroy value?
Yes. Many studies and reviews find a high share of failures, although estimates vary due to methodology and definitions of “success.” For example, Baruch Lev and Feng Gu state that 70–75% of corporate acquisitions fail to meet expectations based on a sample of 40,000 deals.

Does this mean M&A should not be done?
No. It means M&A must be treated as capital allocation with a required return threshold and managed risk—not as a competition. The best results are usually achieved by companies with a repeatable integration capability and strict pricing discipline.

What is the main “red flag” of the Winner’s Curse?
The main red flag is when the price rises and the synergy model is adjusted after the fact to keep NPV positive. At that moment, you are already paying for your own confidence—not for the asset.

What if the seller says: “There is another buyer—decide today”?
Bring the process back to the hard cap and kill criteria, because an ultimatum is a typical FOMO trigger. If the economics work, you will still have time to sign; if they don’t, the ultimatum only accelerates a wrong decision.

What role can an external consultant play?
An external consultant is useful as an “outside view”: they compare the deal to a reference class, ask uncomfortable questions, and prevent sunk costs from replacing calculation. Their value is not that they are “smarter,” but that they are less emotionally involved and can keep the process within risk and financial logic.

About the Author: This material was prepared by the analytical team of LigLex Consulting under the leadership of Managing Partner Sergey Lipatnikov. We specialize in supporting complex transactions, transitioning Ukrainian businesses into Western jurisdictions, and implementing advanced risk-management systems. We help owners make decisions driven by data—not emotions.

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