This definitive book will become required reading for managers, corporate directors, consultants, investors, bankers, and academics involved in the mergers and acquisitions arena. How do other factors such as strategic relatedness, relative size, method of payment, mergers versus tender offers affect performance in the context of the acquisition premium? A Boston Consulting Group study found that during the pre-merger stage, eight of ten companies did not even consider how the acquired company would be integrated into operations following the acquisition. Enter Mark Sirower, who asks the simple question, are mergers efficient? But managers who analyze the acquisition premium and understand the concept of synergy will not get caught. With acquisition activity running into the trillions of dollars, the acquisition alternative continues to be the favorite corporate growth strategy of this generation's executives. Book is in Used-Good condition. At ThriftBooks, our motto is: Read More, Spend Less. Putting together two businesses that are profitable, well managed, and even related in every way is not enough to create synergy.
Many acquisition premiums require performance improvements that are virtually impossible to realize, even for the best of managers in the best of industry conditions. The price may be the seller's own price elsewhere or another seller's price. Research examining mergers from the 1960s and 1970s found that target firm shareholders on average experienced significant gains and acquirers either gained or, at worst, broke even. In particular, Chapter 4 integrates and extends the financial and strategic concepts presented in Part 1 and gives useful tools and lessons for anyone involved in acquisition decisions. Markets give estimates of this range of value transfer through changes in share prices.
Fortunately, he is surrounded by first-rate professionals. In addition, many mergers result in unforeseen difficulties that actually result in even worse stock performance. I promise to get a much bigger up-front advance next time. After decades of research and billions of dollars paid in advisory fees, why do these major decisions continue to destroy value? Possible ex library copy, thatâ ll have the markings and stickers associated from the library. While the author does not recognize these constraints on the companies in his sample, he claims that it would be cheaper for shareholders to simply buy shares of the target firm themselves, rather than through their company at such a big premium. However, in acquisitions, the breakthroughs are called synergies. That value equals the pre-acquisition share price.
They can predict the probability and the amount of shareholder losses or gains. Using the acquisition premium, we can calculate what the required synergies must be. As Bruce Greenwald, a professor at Columbia Business School has said: Once you see the truth about something it is obvious, but there are many seemingly obvious things that simply are not true. The intrinsic problem with the literature is a lack of understanding of the meaning of the premium or the meaning of synergy. Unfortunately, creating shareholder value remains the most elusive outcome of these corporate strategies.
Choose expedited shipping if available for much faster delivery. Sirower shows that companies must meticulously plan -- and account for huge uncertainties -- before deciding to enter the acquisition game. Acquisition premiums can exceed 100 percent of the market value of target firms. They often fail to consider that it is incorrect to judge the soundness of an acquisition decision on the basis of what it would cost the company to develop that particular business from scratch—an idea that may have been a value-destroying decision on its own. Perhaps this is because the concept of synergy itself has been poorly defined.
The high premiums paid to acquire new companies compares favorably to paying these taxes and paying taxes is much worse for society. Finally, this book is dedicated to the memory of my parents, who lovingly preached the values of integrity, honesty, determination, and perseverance. But acquirers often pay a premium over the stand-alone market value of these assets and technologies. Legendary and successful acquirers such as Bestfoods, Cooper Industries, and Emerson Electric have learned over time and implicitly understand the fundamentals of the game. Sirower explains how companies often pay too much -- and predictably never realize the promises of increased performance and competitiveness -- in their quest to acquire other companies. Part 2 presents an extensive analysis of the performance of corporate acquisition strategies, incorporating and examining the elements of Part 1.
Manufactured in the United States of America 10 Library of Congress Cataloging-in-Publication Data Sirower, Mark L. But in current hypercompetitive markets, it is a difficult challenge just to achieve the expected performance that is already built into existing share prices -- at a zero premium. Sirower shows that companies must meticulously plan -- and account for huge uncertainties -- before deciding to enter the acquisition game. It is no wonder that often the acquirer loses the entire premium -- and more. Perhaps this is because the concept of synergy itself has been poorly defined.
Suppose you are running at 3 mph but are required to run at 4 mph next year and 5 mph the year after. It is wrong to assume that if the management problems were not there, all or any of the synergy promised by the premium would occur. There are fewer fairy-tale finishes than expectations out there, as Warren Buffett has related in the opening quotation to this chapter. Ultimately, the author is led to an explanation of mergers based on economic irrationality. In other words, management researchers simply assumed that acquisition prices are highly correlated with potential value.