Chapter 1

Merger Growth Strategy

Mergers and acquisitions (M&A) can accelerate a company's growth probably more than most other means within its arsenal. This is particularly true of larger deals. However, as we discuss, the track record of M&A success is spotty at best. The key is determining a priori the deals that will be winners and the ones to avoid. The problem is further complicated by the fact that management may sometimes seek to pursue M&A for their own personal benefit, which may work against the interests of shareholders.

As we discuss at length in this book, there is a large body of research on the effectiveness of M&A and the impact that M&A has on shareholder wealth. In fact, M&A is one of the most researched topics in the field of finance. There is a large body of high quality pragmatic studies that scrutinize M&A decisions and the impact they have on the shareholders. These researchers, primarily academics, have devoted considerable time and effort to trying to determine the answers to questions such as “Do diversifying deals or M&A outside of a company's established expertise have positive or negative effects on the wealth of their shareholders?” This is one example of an important question that M&A decision makers could answer better if they were aware of the relevant research. However, one of the surprising facts of the field of M&A is that decisions makers, CEOs, and their boards of directors, generally have no awareness of this large body of quality research ...

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