Why Companies Do Not Pursue Attractive Mergers and Acquisitions

by Richard B. Connell


There are substantial bodies of literature that advance theory about why merger and acquisition candidates are found to be unattractive, why negotiations are not concluded, and why the benefits of companies that are acquired are not realised. Little, if any, research identifies why merger and acquisition opportunities are not pursued in the period after candidates are analysed and found to be attractive but before negotiations begin. This study addresses this period by developing a theoretical framework of the variables that intervene to reverse decisions to pursue apparently attractive candidates before negotiations begin and which, in doing so, result in missed opportunities.

The study is informed primarily by the strategic-management content literature but draws from the strategy-process literature including streams in strategic decision making (SDM) and behavioural decision theory (BDT). The results suggest that there are three major categories of variables that stop acquirers from pursuing potentially attractive acquisition candidates.

The framework is developed using a multiple-case study method. This choice was dictated by the study’s theory building objective, the nature of the research questions–that is, what variables influence decisions and how?–and the lack of an existing theoretical foundation on which to build. The sample consisted of 37 decisions reversals made by 27 firms in Australia, Europe, and the USA.

These are related to the acquirers: • Strategy and objectives: for example, whether there is a change in strategy or objectives, or either or both are poorly understood and agreed between organizational levels or units • Organizational functional resources: for example, whether constraints on appropriate knowledge and skill sets develop or are perceived to be likely to develop during the postevaluation period • Other financial factors: for example, whether a shortage of funds develops

Twelve individual variables are identified. Almost all of these are consistent with factors that Ansoff and colleagues (1971) associate with postacquisition failure. Poor management of the variables thus appears to expose acquirers to two different––but important––vulnerabilities. First, potentially attractive merger and acquisition opportunities may be forgone; second, the benefits of attractive companies that are acquired may not be realized.

This study’s most important contribution is to the theoretically diverse base of acquisition performance literature which, to date, tends to examine phases in the merger and acquisitions decision making process before or after the focal period of this study.

It also illustrates the use of a general multi-theoretic model of strategic decision making (Rajagopolan et. al., 1993, 1998) exclusively in the merger and acquisition domain, a domain whose decisions are worthy of study in their own right. For practitioners, it provides a checklist of factors that should be taken into account in their merger and acquisition planning to preclude missing out on opportunities in the latter stages of the process.

This is a critical book for business scholars that provides an important perspective that has not yet been studied.


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