YEARS OF MERGERS AND ACQUISITIONS RESEARCH : RECENT ADVANCES AND FUTURE OPPORTUNITIES

The complex phenomenon that mergers and acquisitions (M&As) represent has attracted substantial interest from a variety of management disciplines over the past 30 years. Three primary streams of enquiry can be identified within the strategic and behavioural literature which focus on the issues of strategic fit, organizational fit and the acquisition process itself. The recent achievements within each of these research streams are briefly reviewed. However, in parallel to these research advances, the failure rates of mergers and acquisitions have remained consistently high. Possible reasons for this dichotomy are discussed, which in turn highlight the significant opportunities that remain for future M&A research. 30 YEARS OF MERGERS AND ACQUISITIONS RESEARCH: RECENT ADVANCES AND FUTURE OPPORTUNITIES Introduction Mergers and acquisitions continue to be a highly popular form of corporate development. In 2004, 30,000 acquisitions were completed globally, equivalent to one transaction every 18 minutes. The total value of these acquisitions was $1,900 billion, exceeding the GDP of several large countries. However, in a paradox to their popularity, acquisitions appear to provide at best a mixed performance to the broad range of stakeholders involved. While target firm shareholders generally enjoy positive short-term returns, investors in bidding firms frequently experience share price underperformance in the months following acquisition, with negligible overall wealth gains for portfolio holders (Agrawal and Jaffe, 2000). Internally managers of acquiring firms report that only 56% of their acquisitions can be considered successful against the original objectives set for them (Schoenberg, in press). Meanwhile, target firm executives experience considerable acculturative stress and, on average, almost 70% depart in the five years following completion (Krug and Aguilera, 2005). The complex phenomenon which mergers and acquisitions represent has attracted the interest and research attention of a broad range of management disciplines encompassing the financial, strategic, behavioural, operational and cross-cultural aspects of this challenging and high risk activity. While in recent years research into the human and psychological aspects of 1 The terms merger and acquisition are used interchangeably in this paper. M&A have increased in prominence, the M&A literature continues to be dominated by financial and market studies, with a high concentration of interest in the USA and UK (Cartwright, 2005). Our initial aim in compiling this Special Issue was to reflect the multi-disciplinary nature of M&A, consistent with the scope of the British Journal of Management, and to bring together a collection of high quality papers which captured a range of different perspectives and modes of inquiry. As we discuss below, M&A research has tended to develop along discipline-based lines and this has brought detailed insights into a number of important aspects. However, it is arguable that this specialization has been at the cost of developing a more holistic understanding of what determines their performance and what consequences they bring. The papers for this issue arose from two routes. A symposium linked to the Special Issue was held at the 2004 British Academy of Management Annual Conference in St Andrews. The symposium featured six contributions, selected for their diversity of perspectives and methodologies, which were subsequently entered into the review process for this volume. These papers were supplemented by submissions made directly in response to the Call for Papers that appeared in Volume 15 of the British Journal of Management. We were extremely encouraged by the high level of submissions received, particularly the number of papers emanating from mainland Europe and Australasia. In total 34 submissions were received, representing 15 countries. Following a rigorous review process involving many of the leading scholars in the field, we are delighted with the contributions which form this issue. Our thanks go to the many reviewers who provided detailed, constructive and timely comments on the manuscripts. We are also grateful to all the authors who submitted their work and contributed to the quality of the Special Issue. The final selection was difficult and was based on the individual quality of the submission, irrespective of the discipline from which it emanated. Consequently, there is a rather stronger focus on integration and integration process variables than the more traditional perspectives on M&A activity. This, we consider, is an encouraging reflection on the advances in M&A research that are currently taking place. Recent Advances and Contributions As M&A research has developed largely along disciplinary lines, finance scholars have primarily focused on the issue of whether acquisitions are wealth creating or wealth reducing events for shareholders. The weight of evidence shows that while takeovers unambiguously bring positive short-term returns for shareholders of target firms, the long-run benefit to investors in acquiring firms is more questionable. Agrawal and Jaffe’s (2000) comprehensive review of this literature suggests that in aggregate the abnormal returns accruing to acquiring firms in the years following an acquisition are negative or, at best, not statistically different from zero. Importantly, these studies also highlight the wide variation in acquisition performance at the firm level. Approximately 35-45% of acquirers do achieve positive returns in the two to three year period following acquisition, with reported standard deviations in the order of 10% around the mean return (e.g. Conn et al., 2001). The desire to understand the antecedents of this variance lies at the heart of much M&A research and is the subject of the first article in this issue. In this article, Sudarsanam and Mahate (2006) consider the mood of the bid and investigate the effect of bidder type i.e. friendly, hostile, white knight, multiple hostile, on the long-term performance of over 500 UK takeovers by examining shareholder returns at various points over a three year period. Despite the negative press they tend to receive, the authors argue that their findings show that single hostile bids deliver higher financial returns than friendly, white knight or multiple hostile bidders. The paper is also interesting in that it begins to straddle the traditional domains of finance and strategic management by including in the analysis a number of firm specific variables relating to corporate governance structures and top management turnover. The main focus of the strategic management research in the M&A field has been on the identification of strategic and process factors that may explain the performance variance between individual acquisitions. The ‘strategic fit’ literature has been concerned with the link between performance and the strategic attributes of the combining firms, in particular the extent to which a target company’s business should be related to that of the acquirer. While little consensus has emerged from this work (King et al., 2004; Seth, 1990), recent extensions to this perspective have provided detailed insights into value creation mechanisms within acquisitions based on resource sharing (e.g. Capron and Piste, 2002) and knowledge transfer (e.g. Ahuja and Katila, 2001). However, explanations of M&A underperformance cannot be sufficiently accounted for by the “goodness of the strategic fit” alone without account being taken of the wider integration process. The ‘process’ literature focuses on the important role that the choice of integration strategy and acquisition process itself can play. Both strategy and organizational behaviour scholars highlight that inappropriate decision-making, negotiation and integration processes can lead to inferior acquisition outcomes. A key contribution of this approach has been the provision of contingency frameworks for the form of post acquisition integration (Cartwright and Cooper, 1996; Haspeslagh and Jemison, 1991) and an understanding of how different integration approaches may impact the ultimate outcome of a union (e.g. Child, Pitkethy and Faulkner, 1999; Schweiger and Very, 2003). Contemporary work from this perspective is also developing our knowledge of how organizations can learn from their prior acquisition experiences. Organizational learning appears to be mixed in the M&A context (Haleblian and Finkelstein, 1999) with the nature, variety and performance of prior experiences playing an important role (Hayward, 2002). An emergent and growing field of enquiry has been directed at the cultural dynamics of M&As and the emotional and behavioural response of the employees involved. This literature, with its diverse origins in the psychology, organizational behaviour and human resource management disciplines has sought to explain M&A underperformance in terms of the cumulative dysfunctional impact the event itself, its associated uncertainty and the subsequent process of integration have on individual organizational members. Within this literature, poor culture-fit or lack of cultural compatibility have become much cited, if rather poorly defined, reasons for M&A failure. The relationship between culture and performance continues to intrigue and confuse researchers as studies examining this link in relation to domestic and international M&As have produced rather mixed, and often contradictory results (Cartwright, 2005; Schoenberg, 2000). In their conceptual article Teerikangas and Very (2006) attempt to disentangle some of the issues which may shed light on the current inconsistent research evidence and offer advice for future research, particularly the importance of more longitudinal studies. According to Gertsen and Soderberg (1998), in M&A situations, the discourse around cultural differences is a vehicle by which employee groups assert the distinctiveness of their social ident