"Every CEO and Corporate Director who has been in the path of the 'WOW! GRAB IT!' acquisition locomotive should read this book!"
-- Charles R. Shoemate,
Chairman and CEO, Bestfoods
With global 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 reveals:
The unique business gamble that acquisitions represent
The managerial challenges already embedded in current stock prices
The competitive conditions that must be met and the organizational cornerstones that must be in place for any possibility of synergy
The precise Required Performance Improvements (RPIs) implicitly embedded in acquisition premiums and the reasons why these RPIs normally dwarf realistic performance gains
The seductiveness and danger of sophisticated valuation models so often used by advisors
The Synergy Trap is the first expose of its kind to prove that the tendency of managers to succumb to the "up the ante" philosophy in acquisitions often leads to disastrous ends for their shareholders. Sirower shows that companies must meticulously plan -- and account for huge uncertainties -- before deciding to enter the acquisition game. To date, Sirower's work is the most comprehensive and rigorous, yet practical, analysis of the drivers of acquisition performance. This definitive book will become required reading for managers, corporate directors, consultants, investors, bankers, and academics involved in the mergers and acquisitions arena.
Kathryn Rudie Harrigan Henry R. Kravis Professor of Business Leadership, Graduate School of Business, Columbia University The Synergy Trap is a stark benchmark for assessing immediately whether acquisition premiums will be wasted, whether shareholder value will be destroyed.
Peter P. W. Tse Chief Financial Officer, CLP Holdings Limited As mergers and acquisitions become a more prominent theme in Asia-Pacific, Mark Sirower's book provides vital lessons for would-be acquirers. Here is compelling evidence that acquisition synergies don't just happen -- they have to be analyzed and pursued in a systematic and disciplined manner.
Roy C. Smith Professor of Finance, Stern School of Business, New York University; Limited Partner, Goldman, Sachs & Co. Should be of great interest to directors of public corporations and investing institutions. Sirower's findings suggest that managers need to be more vigorously restrained, unless they are able to meet higher standards by much tougher-minded independent board members.
Robert Cizik Chairman and CEO, Cooper Industries, Inc. (Retired) A refreshingly revealing book on the "acquisition game" and the reasons why most are DOA (dead on arrival). Food for thought for those CEOs who recommend acquisitions and, perhaps more important, those directors who must approve those recommendations.
John E. stuart Chairman and CEO, ALCO Standard Corporation The first book on acquisitions I've read which actually makes sense. Dissects and explains in understandable terms why and how they can actually diminish shareholder value. I highly recommend it.
Alfred Rappaport The Leonard Spacek Professor Emeritus, J. L. Kellogg Graduate School of Management, Northwestern University; Co-founder, The Alcar Group Inc. An excellent antidote for the CEO willing to pay steep acquisition premiums without fully acknowledging the increases in performance required before any value is created. As Sirower's many examples demonstrate, the winning bid too often materializes as a significant transfer of value from the acquirer's to the seller's shareholders.