The Synergy Trap
Mark L Sirower "The Synergy Trap" Free Press 1997.
Mergers and acquisitions activity normally represents the largest one-off investment made by a company. Premiums paid can be enormous. Few companies build in time for testing the target company, and few organisations carry out many acquisitions. Their scope for learning is therefore small. It is made smaller in that fewer still set out targets for the acquisition and then review the acquisition after the event. They are afraid to close the loop, to share the outcomes and to therefore learn from them. Far from being driven by the evidenced success of acquiring companies, this is a corporate activity where the only obvious winners are the bankers, lawyers and consultants involved. Sirower sums up his conclusion:
- Acquisitions destroy value for the acquirer.
- The stock market losses on announcement of acquisitions are indicative of expected long term performance.
- The higher the premium paid the larger the losses.
- Strategic relatedness has no impact on performance.
- Cash purchases perform better than those using stock.
- Contested acquisitions lead to higher premiums.
- ´Friendly´ mergers do not fare better.
- Relative size seems to have no consistent impact.
Sirower estimates an overall 65% failure rate, KPMS 70%. "The Synergy Trap" Free Press 1997.