Synergy Value and Strategic Management: Inside the Black Box of Mergers and Acquisitions

98 Pages·2017·2.82 MB·English

by  Stefano Garzella

Contributions to Management Science
Stefano Garzella
Raff aele Fiorentino
Synergy Value
and Strategic
Management
Inside the Black Box of Mergers and
Acquisitions
Contributions to Management Science
More information about this series at http://www.springer.com/series/1505
Stefano Garzella (cid:129) Raffaele Fiorentino
Synergy Value and Strategic
Management
Inside the Black Box of Mergers
and Acquisitions
StefanoGarzella RaffaeleFiorentino
UniversityofNaplesParthenope UniversityofNaplesParthenope
Naples,Italy Naples,Italy
ISSN1431-1941 ISSN2197-716X (electronic)
ContributionstoManagementScience
ISBN978-3-319-40669-5 ISBN978-3-319-40671-8 (eBook)
DOI10.1007/978-3-319-40671-8
LibraryofCongressControlNumber:2016951861
©SpringerInternationalPublishingSwitzerland2017
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Preface
Synergy management is an important challenge for firms, advisors, and practi-
tioners involved in mergers and acquisitions (M&A). Synergy plays a key role in
mergersandacquisitions(M&A),first,inthedecision-makingprocessand,then,in
theintegrationstep.However,despitethesynergyvalueiscommonlyregardedas
one of the M&A success factors, scholars show that firms generally fail in the
achievement of expected synergy. There is a lack of comprehensive models of
synergymanagementintheliterature:theassessmentofsynergyvalueisa“black
box” for both scholars and practitioners. Our aim is to provide a comprehensive
framework of synergy management by the integration of findings from prior
research and several disciplines. This framework highlights the main dimensions
ofsynergymanagementinmergersandacquisitions,thecommonpitfalls,andnew
models and tools to overcome these pitfalls. Therefore, the book, on one hand,
enriches M&A literature and suggests insights for scholars and, on the other,
providesguidelinesforpractitionersinvolvedinsynergymanagement.
These findings are the result of a complex research project, begun some years
ago,developedthroughtheliteratureanalysisandempiricalresearchdiscussedand
sharedwithvariousacademicsandpractitionersandcolleaguesandfriends.Eachof
themhasprovidedusefuladviceandsuggestions.
Then,wewouldlikefirsttoacknowledgeourcolleaguesoftheUniversitiesofNaples
“Parthenope,”Pisa,andRome“LaSapienza”forusefulexchangeofviews.Wearealso
grateful to the members of the research project on “Growth Strategies, Corporate
GovernanceProcessesandValueCreation”fundedbythePRINProgramoftheItalian
MinisterofEducation,UniversitiesandResearch.Thisstudywasalsosupportedbythe
researchfundsoftheUniversityofNaplesParthenope.Finally,thankstoreviewersand
participants to conferences and workshops where we discussed prior versions of this
workforadviceandinsights.
Naples,Italy StefanoGarzella
April2016 RaffaeleFiorentino
v
ThiSisaFMBlankPage
Contents
1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2 M&ASuccessandFailure:TheRoleofSynergyManagement. . . . . . 9
2.1 StrategicManagement,GrowthStrategies,andM&As. . . . . . . . . . 9
2.2 TheRoleofSynergyinMergersandAcquisitions. . . . . . . . . . . . . 16
2.3 Synergy:AnImportantMotivationofM&As. . . . . . . . . . . . . . . . . 20
2.4 Synergy:AnAimDifficulttoRealize. . . . . . . . . . . . . . . . . . . . . . 21
2.5 Synergy:TheRisks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3 InsideSynergyAssessment:TowardstheRealValueofM&As. . . . . 35
3.1 TheValueofSynergy. .. . . . . . . . . . . .. . . . . . . . . . . . .. . . . . . . 35
3.2 TheAnalysisofStrategicFactorsAffectingSynergy. . . . . . . . . . . 37
3.2.1 WhatIstheExpectedFormoftheSynergy?. . . . . . . . . . . . 37
3.2.2 WhenDoestheSynergyStartsAffectingEarnings
andCash-Flows?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.2.3 WhatIstheLikelihoodofAchievementofEach
SynergyType?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
3.3 TheSynergyValuationModels. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.4 TheAssessmentofSynergyValue. . . . . . . . . . . . . . . . . . . . . . . . 43
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
4 SynergyManagement:FromPitfallstoValue. . . . . . . . . . . . . . . . . . 53
4.1 TheSynergyPitfalls. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
4.1.1 TheMirage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
4.1.2 TheGravityHill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
4.1.3 TheAmnesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
4.2 TheManagementofSynergyPitfalls. . . . . . . . . . . . . . . . . . . . . . . 59
4.2.1 TheManagementofSynergyintheMainStep
oftheM&AProcess. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
vii
viii Contents
4.2.2 AnAnalysisoftheSeveralValuesofSynergy. . . . . . . . . . 60
4.2.3 TheRecognitionoftheForbiddingEffects
ofanImproperApproachtoSynergyManagement. . . . . . . 60
4.2.4 TheEvaluationofthePotentialCausesofImproper
SynergyManagement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
4.2.5 TheSelectionofPotentialSolutionstoPoorSynergy
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
4.3 HowtoOvercomeSynergyPitfalls:ToolsandActions. . . . . . . . . . 63
4.3.1 AvoidingtheMirage:Let’sReducetheTemperature. . . . . . 65
4.3.2 AvoidingtheGravity-Hill:Let’sLightentheHorizon. . . . . 67
4.3.3 AvoidingtheAmnesia:Let’sKeepanEye
ontheAgenda. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
4.4 TheSynergyStatement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
5 Conclusions. . . . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . . . .. . . . . . . 83
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Chapter 1
Introduction
Abstract Thereisalackofcomprehensivemodelsofsynergymanagementinthe
literature: the assessment of synergy value is a “black box” for both scholars and
practitioners. Our aim is to provide a comprehensive framework of synergy man-
agementbytheintegrationoffindingsfrompriorresearchandseveraldisciplines.
This framework highlights: the main dimensions of synergy management in
mergers and acquisitions, the common pitfalls, and new models and tools to
overcomethesepitfalls.
In order to reach our aim we have articulated the book in three chapters
analyzing: the role of synergy in M&As; the synergy assessment process; the
managementofsynergypitfalls.
Keywords Synergy(cid:129)Pitfalls(cid:129)Blackbox(cid:129)Framework
SynergyisbackatthetopofthecorporateagendainM&Aprocesses.However,the
successofexternalgrowthstrategieshasbeenlimitedandthemostrecentdealsdo
not show any meaningful difference with respect to M&A failure rates (Bruner
2004; Cartwright and Schoenberg 2006; Hitt et al. 2009; Thanos and Papadakis
2012).UnidentifiedmediatorsseemtodrivevarianceinM&Aperformance(King
etal.2004).
Most of the deal’s announcements with high synergy expectations are often
followedbydisappointingperformance.EachM&Ainitiativeembarksonthesame
enthusiasticquestforsynergyachievementandfacesthesamechallenges.Harding
and Rovit (2005), building on the results of a research conducted by Bain &
Company, affirmed that two-thirds of the executives responsible for acquisitions
believetohaveoverestimatedthesynergicpotentialandunderlinetherelevanceof
thiserrorforthedealfailure.
Consistently,thestudyofM&Aisanestablishedbodyofliteratureinmanage-
ment research (Bertini1990; Collis and Montgomery 1997; Galeottiand Garzella
2013;Keiletal.2013;Haleblianetal.2009;Onestietal.2012;Porter1980).M&A
research, specifically in accounting and finance, largely focuses on value creation
issues. However, published results are often divergent and measurements incom-
plete(e.g.,Bruner2002).Forinstance,althoughthereissomeevidencethatM&A
dealscreateshort-termvalueforshareholdersintargetfirms,theempiricalsupport
forthecreationoflong-termvalueinacquiringfirmsremainsambiguous(Agarwal
©SpringerInternationalPublishingSwitzerland2017 1
S.Garzella,R.Fiorentino,SynergyValueandStrategicManagement,
ContributionstoManagementScience,DOI10.1007/978-3-319-40671-8_1