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Simon The Synergy Trap by Mark L. Sirower
With acquisition activity running into the trillions of dollars the acquisition alternative continues to be the favorite corporate growth strategy of this generations executives. Unfortunately creating shareholder value remains the most elusive outcome of these corporate strategies. After decades of research and billions of dollars paid in advisory fees why do these major decisions continue to destroy value?Building on his groundbreaking research first cited in Business Week Mark L. 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. Armed with extensive evidence Sirower destroys the popular notion that the acquisition premium represents potential value. He provides the first formal and functional definition for synergy -- the specific increases in performance beyond those already expected for companies to achieve independently. Sirowers refreshing nuts-and-bolts analysis of the fundamentals behind acquisition performance cuts sharply through the existing folklore surrounding failed acquisitions such as lack of strategic fit or corporate culture problems and gives managers the tools to avoid predictable losses in acquisition decisions.Using several detailed examples of recent major acquisitions and through his masterful integration and extension of techniques from finance and business strategy Sirower reveals:The unique business gamble that acquisitions representThe managerial challenges already embedded in current stock pricesThe competitive conditions that must be met and the organizational cornerstones that must be in place for any possibility of synergyThe precise Required Performance Improvements RPIs implicitly embedded in acquisition premiums and the reasons why these RPIs normally dwarf realistic performance gainsThe seductiveness and danger of sophisticated valuation models so often used by advisersThe Synergy Trap is the first expose of its kind to prove that the tendency of managers to succumb to the up the ante philosophy in acquisitions often leads to disastrous ends for their shareholders. Sirower shows that companies must meticulously plan -- and account for huge uncertainties -- before deciding to enter the acquisition game. To date Sirowers work is the most comprehensive and rigorous yet practical analysis of the drivers of acquisition performance. This definitive book will become required reading for managers corporate directors consultants investors bankers and academics involved in the mergers and acquisitions arena.show more