But the brutal truth is that two-thirds of all acquisitions destroy shareholder value, says Mark Sirower of the Boston Consulting Group. In TheSynergy Trap, a book based on his doctoral thesis, Sirower shows that value is destroyed because most firms simply pay too much for acquisitions. The book, first published in 1997 and reissued this year in Asia with a new introduction, is timely. Sirower, a corporate-development adviser at BCG and a visiting professor at New York University, studied 168 acquisitions of listed U.S. companies from 1979 to 1990. In an interview with the Review, Sirower says the conclusions of his original study hold true for the current crop of acquisitions.
Many executives also fail to use the skills they do have.
An acquisition is a capital-expenditure decision, Sirower says. Another common mistake is the assumption that company A will be able to sell its products more easily to customers of company B if the two companies are combined. This cross-selling strategy is often used to justify acquisitions in the financial sector. Conseco, a U.S. insurer, made a mistake when it bought consumer-finance company Green Tree Financial in 1998. Conseco's stock collapsed.