ABSTRACT

If research indicates that most acquisitions fail, why do companies undertake them? The most appropriate reason for undertaking acquisitions is to add value to the company, by enhancing its competitive advantage. In evaluating potential transactions, the seven drivers of value can be used as a way to determine if such value enhancement – often referred to as ‘ synergy ’ – stands up to scrutiny. The calculations underlying this analysis are vital to determine the ultimate value of the business combination to the bidder’s shareholders, but bidders must remember that the value determined is not the same as the amount to be paid for the target; many bidders overpay, and effectively give away the synergies to the target’s shareholders.