Synergy in Mergers & Acquisitions: The Role of Business Relatedness
The creation of synergy, which is often illustrated as the "2+2=5-effect," is a dominant motive as well as a key success factor for Mergers & Acquisitions (M&A). Inadequate expectations with respect to the synergistic potential can however easily result in an overrated acquisition price. If the planned synergies later fail to materialize, it will be increasingly hard for the acquiring firm to achieve positive value gains for its shareholders. It is therefore vital to obtain a comprehensive understanding of the synergistic potential of a planned M&A project. This issue was addressed with a doctoral thesis investigating the underlying drivers of synergy realization, in particular the concept of business relatedness which describes the similarity of firm attributes, such as product-market presence, resource configuration and supply channel types. Using a quantitative hypothesis-testing survey design, more than 300 M&A consultants worldwide have been invited to evaluate past M&A transactions with respect to their synergistic effects. In contrast to earlier studies, the relatedness of the merging firms is established as a multi-dimensional concept considering various attributes of business relatedness simultaneously. The degree of relatedness is measured using managerial perceptions which is a comparatively new measurement approach transferred from diversification research to the field of M&A. The individual dimensions of relatedness show a different effectiveness concerning synergy realization providing further support to recent contributions which advocate a multi-dimensional conceptualization of business relatedness. The study identifies dimensions of business relatedness and their underlying drivers which are particularly relevant to predictions concerning the synergistic potential. The research project thus makes a valuable contribution to clarify the impact of relatedness on M&A performance and provides important implications for practitioners regarding the eval
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acquiring firm acquisition premium Analysis of variance Ansoff argues business relatedness Chatterjee 1986 correlation cost dyssynergies cost synergy degree of relatedness differentiation diversification economies of scope ergy experience curve effect factors Finkelstein 1999 firm’s five point Likert Furthermore high relatedness Hofmann Homburg and Bucerius horizontal M&A hypothesis IMAP impact of relatedness income and cost income synergy KPMG Larsson and Finkelstein low relatedness Lubatkin M&A performance M&A projects management skills measurement approach merging entities merging firms Montgomery 1987 p-value Pehrsson 2006a performance gains point Likert scale Porter pre-merger evaluation product technology product/market regression analysis relatedness on M&A relationship relevant research project resource-based view result shareholder value significant similar Singh and Montgomery Sirower speed of integration Stimpert and Duhaime strategic Supply channels Swaminathan synergistic effects synergistic potential synergy on relatedness synergy realization synergy types Table target company target firm Tharenou total synergy transactions value chain variables