Why Companies Do Not Pursue Attractive Mergers and Acquisitions ...

Carter (1971a) called attention to the distinct ways in which alternatives are generated and analysed and the high organisational level at which they are made. Pablo (1994) noted their visibility and the intense personal commitment they engender. Hayward (1999) refered to the massive investment, managerial effort, and financial and social disruption they involve as reasons why they are so different from decisions about a business’ core activities. Finally, Brown and O’Connor (1974) stated that in light of the importance of such decisions “acquisitions are the principal interest of the chief executive and he has reserved the company’s efforts in this area for himself ” (as cited in Power, 1983, p. 63). While there are differences in opinion about the extent to which M&A decisions are truly unique in terms of the descriptors used to characterise them in the literature, there appears to be a consensus that they are important.

Given their importance and, arguably, unique characteristics, acquisition decisions have attracted the attention of a core group of researchers who use a decision-making perspective to help explain, predict, and improve acquisition behaviour and outcomes.

1.2.2.3. A High Proportion of M&As Fail

While M&A decisions are important, they receive much attention in the popular press, and much research has been undertaken in the acquisition domain, the significant failure rate suggests many of them are poorly made. Commenting on acquisitions in the mid-1900s, Ansoff et al. (1971) concluded that they are not as profitable a strategy for achieving growth as are alternatives. Porter (1987) and Ravenscraft and Scherer (1987) point to the large incidence of divestitures as a result of inadequate performance. Haunschild, Davis-Blake, and Fichman (1994, p. 528) maintained, “The weight of available evidence indicates that most acquisitions impair rather than enhance the value of the acquiring firm”. Pablo asserted, “The preponderance of evidence suggests that the intended benefits of acquisition are not often realised (Pablo, 1991, p. 3, 1994, p. 804). Finally, Alberts and Varaiya (1989) suggested that acquirers, on average, generate lower pretax returns with acquired lines of business than the businesses generated when they were independent.