Production and quantification of rationales in M&A investment appraisal process

Mergers and acquisitions (M&A) have become an increasingly used tool for companies to seek growth, improve their competitive advantage, and renew themselves. However, M&A investments usually bear a significant amount of risk for the acquiring company, and they have been found to often generate limited or negative return for shareholders. Conducting proper appraisals in M&A is especially important as rationales in these transactions are usually complex by nature and various factors can affect the realization of them. This thesis examines the production of strategic rationales and quantification of them into financial form in M&A appraisal process. Moreover, the objective is to clarify what kind of role does intuitive expertise play in this task, where the potential problems lie in this process and how to control them. This thesis is conducted as a qualitative multiple case study. The empirical evidence for this study was gathered via semi-structured interviews held with representatives from six large Finnish companies which can be considered as active acquirers. A total of seven M&A experts were interviewed. All interviewees were either leading the M&A function in their respective companies or were at director-level. The findings of this study suggest that intuitive expertise plays a significant role in the production and quantification of rationales in the appraisal of M&A investments as suggested by prior studies. Intuition was considered as superior in certain tasks compared to analytical thinking, but intuitive estimates were found to often contain a significant amount of uncertainty. In line with prior studies, the findings suggest that the use of intuition requires an extensive amount of relevant experience. Moreover, the findings contribute to earlier literature and agency theory research by providing empirical evidence of various problems associated with M&A appraisals especially related to the use of intuition. The operational managers might have selfish interests in M&A cases which can lead to, for example, unrealistic assumptions. Regarding the problems present in the appraisal phase, control mechanisms were also found which highlight the importance of having a solid M&A appraisal process where various parties are involved to mitigate the risks. The M&A function in most case companies was found to have a gatekeeper role and it acted as a sovereign third party in M&A appraisal