Insane Acquisitions
Most company acquisitions generate significant benefits. Unfortunately these accrue almost exclusively to the shareholders of the companies being bought, rather than the owners of the acquiring corporation. Time and again major mergers and acquisitions fail to work yet this doesn’t seem to stop the cycle of value destruction. Yet again, something in the corporate world seems to be a bit broken.
The problem is that generally companies overpay for their acquisitions, diluting the value of their equity and, thus, damage the interests of their shareholders. Yet this is no secret, so company executives are persisting with their problematic purchases in the face of almost certain failure. Being insanely overoptimistic seems to be part of the human condition but being dementedly stupid isn’t an obvious precondition for managing major corporations. So what gives?
Most company acquisitions generate significant benefits. Unfortunately these accrue almost exclusively to the shareholders of the companies being bought, rather than the owners of the acquiring corporation. Time and again major mergers and acquisitions fail to work yet this doesn’t seem to stop the cycle of value destruction. Yet again, something in the corporate world seems to be a bit broken.
The problem is that generally companies overpay for their acquisitions, diluting the value of their equity and, thus, damage the interests of their shareholders. Yet this is no secret, so company executives are persisting with their problematic purchases in the face of almost certain failure. Being insanely overoptimistic seems to be part of the human condition but being dementedly stupid isn’t an obvious precondition for managing major corporations. So what gives?
