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THE RISKINESS OF acquisitions as a vehicle for corporate renewal is reflected in both empirical studies of acquisition results and managers’ comments about their experiences. Although many factors contribute to acquisition performance, a variety of recurring patterns in the acquisition process offers clues to the disappointing results. By considering how this process affects the results, we believe managers may gain insight into ways to control negative outcomes. In addition, we hope to expand the debate about acquisitions to the domain of corporate strategy, lb achieve this end, managers must first be willing to adopt a “new” perspective—one that counters the prevailing truths to which many of them subscribe. This perspective hinges on six observations.
- Acquisitions don’t succeed… acquisitive strategies do.
- Shareholders are the least important constituency.
- Managers try to capture rather than create value.
- Strategic analysis plays only a small role in successful acquisition strategies.
- Nothing can be said or learned about acquisitions in general.
- Companies do not learn all they could from their mistakes.
Acquisitions Don’t Succeed . . . Acquisitive Strategies Do
Unfortunately many executives see acquisitions as ends in themselves, not as means to an end. We, however, view acquisitions as an alternative to other equally viable forms of corporate renewal such as internal development, joint ventures, and license agreements. All are means for the firm to secure a capability or a position important to its development and renewal strategy.
Most managers long ago abandoned the practice of judging capital investments solely on a project-by-project basis. Typically, each project is viewed in the context of its contribution to the firm’s overall strategy. Acquisitions, however, are still often considered in isolation from that strategy, even though their monetary value and strategic importance are usually much greater to the firm than most capital investment projects.1
This isolation stems from an inevitable element of opportunism in the acquisition process mat tends to shift the focus of evaluation immediately to the acquisition prospect and its price, thereby neglecting consideration of the acquisition in its strategic context.
Adequate acquisition analysis goes beyond a study of the candidate firm itself and includes an examination of a potential acquisition’s contribution to the firm’s corporate development strategy as well as to the quality of that strategy.2 In other words, we believe that what determines the success of an acquisition is not the acquisition itself, but the acquisitive development strategy that underlies it.
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1. D.B. Jemison and S.B. Sitkin, “Corporate Acquisitions: A Process Perspective,” Academy of Management Review 11 (1986): 145–163.
2. M.S. Salter and W.A. Weinhold, Diversification through Acquisition (New York: The Free Press, 1979);
PC. Haspeslagh, “Making Acquisitions Work,” Acquisitions Monthly, January 1986.
3. M.C. Jensen and R.S. Ruback, “The Market for Corporate Control: The Scientific Evidence,” Journal of Financial Economics 11 (1983): 5–50;
H. Singh and C.A. Montgomery, “Corporate Acquisition Strategies and Economic Performance,” Strategic Management Journal, in press.
4. We are grateful to Mai Salter for his insights into this distinction during several conversations on the topic.
5. Jemison and Sitkin (1986);
A. Rappaport, “Strategic Analysis for More Profitable Acquisitions,” Harvard Business Review, July–August 1979, pp. 99–110.
6. D.B. Jemison and S.B. Sitkin, “Acquisitions: The Process Can Be a Problem,” Harvard Business Review, March–April 1986, pp. 107–116.
7. A.F. Buono, J.L. Bowditch, and J.W. Lewis, “The Human Side of Organizational Transformation: A Longitudinal Study of a Bank Merger” (paper presented at the Academy of Management, San Diego, CA, August 11–14, 1985);
R.H. Hayes, “The Human Side of Acquisitions,” Management Review, November 1979, pp. 41–46;
A. Sales and PH. Mirvis, “When Cultures Collide: Issues in Acquisitions,” in New Futures: The Challenge of Managing Corporate Transitions, ed. J.R. Kimberly and R.E. Quinn (Home-wood, IL: Dow Jones-Irwin, 1985).
8. Haspeslagh (1986).
9. P. Haspeslagh, “Toward a Concept of Corporate Strategy for the Diversified Firm,” Strategic Management Journal, in press.
10. Singh and Montgomery (in press).
11. Jemison and Sitkin (1986).
12. Haspeslagh (1986).