Understanding success and failure in mergers and acquisitions : questing for the Holy Grail of economics, finance, and strategic management

Ten billion dollars a day were spent on mergers, acquisitions and corporate restructurings between 2003 and 2008. And yet between sixty and eighty percent of all mergers will eventually be classified as failures. The aim of this research is to study which mergers work and why, and to profile the successful merger, in a quest for the holy grail of economics, finance and strategic management. We do so using data on approximately 35,000 mergers, which were concluded within or between the periods of both the fifth (1992-2001) and sixth (2003-2008) merger waves. We employ a number of methodological tools – both empirical and theoretical – to consider the performance of these mergers, and the factors affecting them. After first introducing, characterising and evaluating the sixth merger wave, we present five individual studies, which consider five specific performance moderators, namely: regulation and market structure, merger purpose, liquidity, managerial power, and firm size. In the conclusion we show that, given the opportunity, managers will pursue efficient acquisitions, but that in absence of obvious choices, ‘hubris’, or overconfidence, will lead managers to make unsound decisions. We thus place the responsibility for failure squarely on the shoulders of the manager. The results, we suggest, provides an extension to theory of mergers and acquisitions, and makes for a valuable contribution, not only to researchers, attempting to understand the nature of mergers and acquisitions, but to regulators and practitioners, attempting to avoid the value-destroying pit-falls of this field, while protecting against wealth destruction.