What factors influence corporate acquisition decision-making success?

Daniel J. Power
Editor, DSSResources.COM

In 2017 in the United States, there were a record number of merger and acquisition transactions with 15,100, a 12.2% increase over 2016. In 2015, the record for total value of deals was set at $24,100 billion USD, cf., IMAA, 2019. Healthcare, high technology, finance, and consumer products and services industries have seen a large number of transactions. The size of deals in terms of transaction value has been especially high in healthcare. In the US, this current acquisition activity is part of the seventh M&A wave that started in 2014 (Cordeiro, 2014). Not all mergers and acquisitions are a success and limited research has been conducted about factors influencing success. Success of an acquisition can be challenging to measure for both internal stakeholders and for external observers. Both process and decision maker variables likely influence success. For example, use of analytics and decision support may influence success. Uncontrollable external factors like the economy also influence success.

Laveren and Verstreken (2017) identified 15 success factors in a research study including: 1) choosing a suitable partner, 2) trust between the parties, 3) due diligence and good valuation, 4) experience from previous mergers and acquisitions, 5) communication before the execution of the merger or acquisition, 6) quality of the plan, 7) execution of the plan, 8) swiftness of integration, 9) communication during the implementation, 10) strategic fit, 11) organizational fit, 12) cultural fit, 13) calculation and realization of synergies, 14) legislation enabling the merger or acquisition, and 15) state of the economy. The last 2 macroenvironmental factors can and should be considered in corporate acquisition decision-making, but they can not be altered directly by managers.

My Ph.D. dissertation field research (Power, 1982) investigated corporate acquisition decisions made early in the fourth M&A wave by managers in U.S. manufacturing and conglomerate firms. The study investigated hypotheses for two descriptive models: a prediction model and a decision-process model. Through mail questionnaires, data were gathered about 28 acquisitions completed between October 1, 1979 and March 31, 1980. Managers were asked for retrospective information (Huber and Power, 1985) about decision activities and for a current assessment of the acquired company's performance. Twenty-six companies made the acquisitions: nine very large companies with 1979 sales of more than $450 million and seventeen smaller companies. Of the 28 acquired companies, 14 had 1979 sales of $1 to $10 million, 13 had sales of $10 to $35 million, and one had sales of more than $350 million.

The following paragraphs are a summary of the Power (1982) results:

Most investigations of prospects took many months. And many of the decision processes spanned more than 9 months. The acquisitions were generally perceived as more satisfactory than unsatisfactory.

All 14 of the formal analytical activities provided in a list (see Power, 1982, p. 206, Table 6.2 Formal Analytical Activities) to key informants were used by managers in at least 8 companies as part of their acquisition decision process. These managers frequently used analytical activities include: investigating managers of the prospect; examining dilution of earnings per share and debt/equity ratios; and determining payback period, cash flows and/or projected Return on Investment. Many of the managers that were interviewed commented on the importance of examining the financial implications of making a proposed acquisition.

Some activities that one might expect for normative reasons to be important to good decision making were not used very frequently. For example, only one third of the companies compared purchasing the prospect to other investment opportunities. Not as much formal analytical activity occurred during the investigation of the acquisitions included in the study as had been expected. Many activities that have been recommended by acquisition specialists and authors in the normative literature on decision making were not frequently included in corporate acquisition decision processes. Analysis of prospects seemed to heavily stress financial questions.

Many fewer information sources were used and they were used much less frequently by buyers during the investigation of an acquisition prospect than was expected. For example, computerized data bases, like MERGEX and COMPUSTAT were only used as part of two decision processes. Information gathering often involved discussions with managers in the selling firm. The available of online information about companies and hence acquisition prospects has greatly increased since 1980 and hence this finding may no longer be true.

The results of correlation and regression analyses indicated that moderate levels of participation in acquisition sub-decisions and direct contact with the prospect were related to successful acquisitions, but higher levels of both activities were related to lower levels of success. Also, increased participation in decision making did not increase the perceived effectiveness of implementation activities. The amount of formal analytical activity and CEO involvement were not related to successful acquisitions. CEO involvement seems to depend on the size of the acquiring company, with CEOs in smaller companies more involved in making small and medium-sized acquisitions.

Managers used more complex and extensive decision processes when an unrelated business was investigated, but the process was apparently often ineffective. The number of prior acquisitions made by a firm was a good predictor of the success of an acquisition. Firms that made more acquisitions used different decision processes, including lower levels of participation in sub-decisions and less use of information sources. Both experience making acquisitions and acquiring a related business were good predictors of a successful acquisition. Perceived experience was correlated with the number of companies acquired, i.e. r = .36 (p <= .05), but it is not significantly correlated with the number of firms investigated.

In the study sample, a planned search for prospects was not related to more successful acquisitions. Only initiation by an unusual source altered the decision process, and then more CEO involvement and intensive search occur.

The primary dependent variable in Power (1982) was perceived acquisition effectiveness. This variable was measured using seven effectiveness dimensions. Some financial data was also collected from external sources for a sub-sample of large publicly traded firms. Managers may have reported an acquisition was effective in the short-run to justify making additional acquisitions. Also, there are casual problems associated with interpreting these results. Was prior success encouraging additional acquisitions? Did managers bias perceptions of acquisition effectiveness to rationalize, justify, and validate a decision that they had made two years prior to data collection.

Critically assessing the strengths and weaknesses of both the buyer and the acquisition target should help determine the viability and future success of potential mergers and acquisitions. Improving a subjective, qualitative analysis with relevant data may be useful. From a different perspective, Chui and Ip (2017) propose a M&A evaluation and prioritization model (MAEPM) that aims to maximize the M&A success rate. The MAEPM incorporates risk analysis, fuzzy critical path analysis, cost–benefit evaluation, decision rules and prioritization. They tested the model using 11 case studies.

Mergers and acquisitions (M&A) transactions overall are estimated to only have a 50% chance of success (Picardo, 2018). For this reason alone, more research is needed about pre-acquisition decision process factors, including data-based decision support, that may influence M&A success. My research suggests experience making M&A decisions is a good predictor of M&A success. What did experienced managers learn during prior decision processes? How does the decision process change when managers have previously made M&A decisions? Can computerized decision support increase the success rate? Can "big data" analytics improve the effectiveness of corporate mergers and acquisitions?


Chui, A. B. S. and W. H. Ip, "Improving merger and acquisition decision-making using fuzzy logic and simulation," International Journal of Engineering Business Management, Volume 9: pp 1–18, June 19, 2017 at

Cordeiro, M., "The Seventh M&A Wave," Camaya Partners, September 2014 at URL

Huber, G. P. and D. J. Power, “Retrospective Reports of Strategic-Level Managers: Guidelines for Increasing Their Accuracy,” Strategic Management Journal, April-June 1985, 6(2), pp. 171-180.

Institute for Mergers, Acquisitions and Alliances (IMAA), United States - M&A Statistics, 2019 at URL

Jemison, D. B. and S. B Sitkin, "Corporate Acquisitions: A Process Perspective," Academy of Management Review, Vol. 11, No. 1, January 1986

Jemison, D. B. and S. B Sitkin, "Acquisitions: The Process Can Be a Problem," HBR, March 1986 at URL

Kitching, J., “Why do Mergers Miscarry?” HBR November–December 1967, p. 84.

Laveren, E. and L. Verstreken, "15 success factors for merger and acquisition processes," September 26, 2017 at URL

Leighton, C.M. and G. R. Tod, “After the Acquisition: Continuing Challenge,” HBR March–April 1969, p. 90.

Mace, M. L. and G. G. Montgomery, Jr., Management Problems of Corporate Acquisitions (Boston: Division of Research, Harvard Business School, 1962).

Pablo, A. L., "Determinants of Acquisition Integration Level: A Decision-Making Perspective," Academy of Management Journal, Vol. 37, No. 4, August 1994

Paine, F.T. and D.J. Power, “Merger Strategy: An Examination of Drucker's Five Rules for Successful Acquisitions,”Strategic Management Journal, April/June 1984, pp. 99-110.

Picardo, E., "How mergers and acquisitions can affect a company," Investopedia, March 7, 2018 at URL

Power, D. J., Acquiring Small and Medium-sized Companies: A Study of Corporate Decision Behavior," University of Wisconsin-Madison Doctoral Dissertation, 1982 at URL

Power, D.J., "Acquisition Decision Making. Mergers & Acquisitions," August 1983, 18(2), 63-65.

Salter, M. S. and W. A. Weinhold, Diversification Through Acquisition (New York: Free Press, 1979)

Last update: 2019-05-01 02:41
Author: Daniel Power

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