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

While such dossiers go through various iterations as candidates are evaluated, a complete dossier is usually prepared after strategic and financial evaluations, which occur during phases 3 and 4, depicted in figure 1.3. However, many candidates are not subjected to the kinds of in-depth analysis associated with these phases before they are acquired. Yet there are indications that the more thoroughly candidates are evaluated and still found attractive, other things being equal, the more likely their acquisition will be successful and, therefore, lead to performance improvement.

There is a body of empirical data and anecdotal evidence suggesting that a significant number of acquisition candidates are not subjected to thorough analysis.⁶ Hickson, Butler, Cray, Mallory and Wilson (1985), in a sample of 124 of 150 strategic decisions (of all types for which data were available including acquisitions), found that a decision had been made before detailed consideration was given to alternatives and outcomes in 40 cases. They refered to this phenomenon as “quasi decision making” (p. 52). Mintzberg et al., (1976, p. 258) found “very little use of [such] an analytic approach” to decision-making in the stage in the process (the “evaluation-choice routine”) during which candidates in an acquisition search are evaluated and selected.⁷ With specific reference to acquisitions, Hubbard et al. (1994, p. 40) cited as an example a lack of uniformity in due diligence checklist characteristics such as length (6 to 180 pages) and gaps in coverage, and they stated that “no check list appeared to cover all areas in depth”. Haspeslagh and Jemison (1991) suggested that the extent to which a candidate is subjected to analysis is inversely related to the level in the hierarchy at which the acquisition is internally sponsored, although they provide no data linking sponsorship level to success or failure.