Successful & Unsuccessful Acquisitions

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British Journal of Management, Vol. 9, 91-114 (1998)

Attributes of Successful and Unsuccessful Acquisitions of US Firms^ Michael Hitt,* Jeffrey Harrison,^ R. Duane Ireland* arid Aleta Best§ *Lowry Mays College of Business Administration, Texas A&M University, College Station, TX 77843-4221, •College of Business Administration, University of Central Florida, Orlando, FL 32816, 'Hankamer School of Business, Baylor University, Waco, TX 76798-8004, and ^College of Business and Industry, University of Massachusetts Dartmouth, North Dartmouth, MA 02747, USA Acquisitive growth strategies continue to be popular, in spite of increasing evidence that they often do not enhance the financial performance of acquiring firms and may adversely affect innovation. However, some acquisitions are associated with both increases in financial performance and a strengthened commitment to R&D while others experience decreases in both. Multiple theories have been offered to explain acquisitions and their outcomes, but few have received strong empirical support. This paper describes a multiple rater, multiple-case study of acquisitions that had highly favourable outcomes and others that experienced highly unfavourable outcomes. All twelve of the high performing acquisitions studied were found to exhibit the dual characteristics offiriendlinessduring acquisition negotiations and resource complementarities between the two firms. Additionally, debt played an important role in the success (low to moderate debt) or lack of success (high or extraordinary debt) in 21 of the 24 acquisitions studied. Inadequate target evaluation was a factor in 11 of the 12 acquisitions with low performance. Importantly, the results of both sets of acquisitions suggested that a configuration of attributes affected post-acquisition performance. Other findings both supported and contradicted commonly held beliefs about acquisitions, as well as highlighted variables not typically associated with acquisition strategies. The study provides directions for future theory development and empirical research on acquisitions.

Introduction
For many years, acquisitions have been a popular strategy (Hoskisson and Hitt, 1994). For some firms, acquisitions have become a wellinstitutionalized phenomenon strongly influencing organizational structures and behaviours (Hirsch, 1986; Pablo, 1994). Clearly, some organizations consider acquisitions to be a superior method of investing corporate resources (Bruton, Oviatt and White, 1994; Pablo, 1994). ' We thank our colleagues Jean Bartunek, Gibb Dyer, Sydney Finkelstein, Vance Fried, Graham Hubbard, Chet Miller and Hugh O'Neill for comments on earlier drafts of this manuscript. © 1998 British Academy of Management

The amount of resources companies dedicated to acquisitive growth increased steadily between the middle of the 1960s and the end of the 1980s (Weston and Chung, 1990), but the rate of acquisitions slowed slightly during the early 1990s. Between 1990 and 1992, for example, approximately $222 billion was spent on acquisitions (Pablo, 1994). However, acquisition activity began to increase in 1992 and 1993 with more dollars invested in acquisitions during 1994, 1995 and 1996 than in any previous year. In 1996 over $1 trillion was spent on acquisitions globally with $660 billion in the USA (Lipin, 1997). Thus, the USA was the most active followed by Great Britain and Germany (Koretz, 1997). This level of activity suggests that the fifth merger wave of this

92 century has begun and may be the greatest in history (Whitford, 1997). In spite of their popularity as a growth strategy, acquisitions may not, on average, provide many financial benefits for acquiring firms (Carper, 1990; Datta, Pinches and Narayanan, 1992; Jensen, 1988; Loderer and Martin, 1992; Porter, 1987; Ravenscraft and Scherer, 1987). Equally disturbing, there is evidence that acquisition activity can lead to reductions in internally developed innovation (Hitt,...
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