Multiple studies have revealed that over half of completed M&A transactions actually dilute shareholder value within the first year. In a recent white paper,“Fundamental Issues Surrounding Failed Acquisitions” (April 2002), co-authors Robert Stefanowski and Anshuman Ray explore the underlying environmental factors that frequently derail promising corporate pairings.To investigate the extent to which preacquisition environmental factors affect postacquisition success, the authors examine how changes that occurred during the ’90s in investment banking, public accounting, and the economy in general affected the performance of newly merged companies. They first identified companies that had completed acquisitions valued at $100 million or more; then, on the basis of such factors as pre- and post-transaction stock prices and the amount of time permitted for due diligence, they refined their list of target companies. Finally, using financial data gathered through SEC filings, numerous analysts' reports and their own analysis of key financial ratios, they compared the performances of 25 firms that had merged under significantly different business climates. They thus were able to determine how such often overlooked factors as accounting practices, incentive systems and investor expectations alter M&A outcomes and the ability of managers to subsequently meet the financial objectives of merged entities.O
