Academy of Management Journal, Vol. 51, No. 4 (Subscription required.)
Mergers and acquisitions, according to many finance theorists, often produce subpar financial performance because of clashes in management style and organizational structure. The authors of a new study, however, see this conclusion as dangerously shortsighted. Looking at data from 1,600 Dutch multinational firms over a 39-year period (1966–2005), they argue that there are real benefits from acquisitions that become visible only with the passing of time. The authors found that although the bulk of acquisition theory has focused on the short-term effects of mergers (one to two years), the real benefits from acquisitions often lay in the recombining of the corporate subunits, a process that can take a decade or more. The long-term perspective, they argue, is necessary because a merger or acquisition is rarely an isolated event, but rather one link in a chain of restructuring that is part of an evolving corporate strategy. They conclude that an acquisition’s effect on the acquirer’s performance depends largely upon its placement in the sequence of acquisitions, and that the more acquisitions a company makes, the greater its need for large-scale organizational restructuring.
The operational benefits of acquisitions often aren’t apparent for 10 years or more, and the best indicator of success is approaching them as one piece of a larger corporate strategy.