Thursday, September 27, 2007

Recipe for a good acquisition

Three signs of imminent fall

Only one in four acquisitions succeed in creating shareholder value, says Mr Chris Zook, author of Unstoppable (Harvard Business School Press, May 2007), citing a seven-year study conducted by Bain & Company, a global business and strategy consulting firm.

He gives, as examples, large, "big bang" transforming acquisitions like the one between AOL and Time Warner, and the one by Daimler Benz of Chrysler, which had an exceptionally bad track record, with a success ratio of much less than 10 per cent.

"Certainly, bold deals give a company a sense of power and confidence at the moment of acquisition," adds Mr Zook, in a recent interaction with Business Line over the email. "But the record of eroded balance sheets or tarnished careers is not conducive to either. This is like playing the lottery and calling it your growth strategy."

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