The Synergy Trap

by Mark L. Sirower

With acquisition activity running into the trillions of dollars, the acquisition alternative continues to be the favorite corporate growth strategy of this generation's executives. Unfortunately, creating shareholder value remains the most elusive outcome of these corporate strategies. After decades of research and billions of dollars paid in advisory fees, why do these major decisions continue to destroy value?

Building on his groundbreaking research first cited in Business Week, Mark L. Sirower explains how companies often pay too much -- and predictably never realize the promises of increased performance and competitiveness -- in their quest to acquire other companies. Armed with extensive evidence, Sirower destroys the popular notion that the acquisition premium represents potential value. He provides the first formal and functional definition for synergy -- the specific increases in performance beyond those already expected for companies to achieve independently. Sirower's refreshing nuts-and-bolts analysis of the fundamentals behind acquisition performance cuts sharply through the existing folklore surrounding failed acquisitions, such as lack of "strategic fit" or corporate culture problems, and gives managers the tools to avoid predictable losses in acquisition decisions.

Using several detailed examples of recent major acquisitions and through his masterful integration and extension of techniques from finance and business strategy, Sirower

Genres: Business, Economics

304 pages, Paperback

First published January 23, 1997

Reviews

[Walker*Management*Library]

Recommended by Professor Tim Gardner

Since nearly all acquiring companies overpay for their targets and the time lag between purchase and integration of a new company is so long, the ROI of the “synergy” of an acquisition is nearly always zero or negative. This is an important lesson for managers of firms thinking they can purchase their way into profitable growth.

[Lori Grant]

A should-read book on partnerships and alliances for knowledge workers and entrepreneurs.