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ACCA Strategic Professional · Advanced Financial Management · Acquisitions and mergers versus other growth strategies

Studies of acquisition performance commonly find that many deals fail to create value for the acquirer's shareholders. Which of the following is most commonly cited as a cause of such failure?

A common cause of acquisition failure is overpaying: the premium paid to the target's shareholders exceeds the value of synergies that are actually realised, so value passes to the target's owners and the acquirer's shareholders lose.

  1. APaying a price that exceeds the value of the synergies the acquirer can actually realiseCorrect
  2. BFinancing the deal with retained earnings rather than new shares
  3. CChoosing a target in the same industry as the acquirer
  4. DCompleting the integration within the first year after the deal

Explanation

Value is destroyed when the premium paid is greater than the present value of the synergies achieved, so the acquirer's shareholders transfer value to the target's shareholders. The other options are not recognised causes of failure; same-industry targets often offer more realisable synergies.

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