Acquisitions: a health warning
Acquiring companies is a common way to drive growth into new markets, buttress market share and generally achieve a strategic vision. But does it actually work? And if not, why not? Continue reading
In 1987, Harvard professor Michael Porter observed that between 50 and 60% of acquisitions were failures. There have been several other studies since then, and the results have continued to support his conclusions.
In 1995, for example, Mercer Management Consulting noted that between 1984 and 1994, 60% of the firms in the “Business Week 500″ that had made a major acquisition were less profitable than their industry. In 2004, McKinsey calculated that only 23% of acquisitions have a positive return on investment.
Academic research in strategy and business economics have taken these conclusions further, suggesting that acquisitions destroy value for the acquiring firm’s shareholders, although they create value for the shareholders of the target firm, something that was confirmed by a recent study carried out by the Boston Consulting Group (2007).
Of course results vary depending on the type of acquisition, the similarity of the two protagonists’ industry, the international or domestic nature of the operation, etc., but the overall trend remains the same.
Acquisitions harm performance. We think this is because culture isn’t typically managed as an asset, and people aren’t as portable as machines.