A study of corporate acquisition procedures and their relationship to financial performance.

This study investigates the characteristics of the corporate planning processes adopted within companies and, in particular, the use made of such processes when considering an acquisition. Fifteen companies and twenty acquisitions were studied in depth and in each case structured interviews were conducted with those directors who had been involved in the acquisition decision. The interviews covered five major areas, viz; 1. the planning process and the acquisition trigger. 2. the company internal audit. 3. the acquisition criteria. 4. the bid. 5. post-acquisition action and evaluation. In analysing the data executives answers were compared and a measure of their level of agreement upon each question was obtained. Additionally, each company was classified financially both in terms of its absolute size and profitability relative to competitors and its stability of growth in size and profitability. Companies with the more formal systems tended to identify the need for acquisition such that they became problem-avoiders rather than problem-solvers and in these cases the extent of formal analysis was maintained throughout the pre-acquisition procedure. However, there was no evidence that this planning was of immediate benefit since there was no identifiable relationship between formal systems and either the nature of the acquisition or the amount of change required in the victim firm, whether planned or unplanned. Taken overall, executives maintained consistent harmony or disharmony in their responses, those in companies which adopted formal procedures showing a higher level of consensus than those in companies which adopted less formal procedures. when comparing financial performance size predominated. The larger companies were those in which the more formal procedures were used and also those in which the levels of consensus were highest. Relative profitability was not found to be a significant factor in the acquisition process