The Synergy Trap - by Mark L Sirower (Paperback)

Book Synopsis

With acquisition activity running into the trillions of dollars, the acquisition alternative continues to be the favorite corporate growth strategy of this generation's executives. Unfortunately, creating shareholder value remains the most elusive outcome of these corporate strategies. After decades of research and billions of dollars paid in advisory fees, why do these major decisions continue to destroy value? Building on his groundbreaking research first cited in Business Week, Mark L. Sirower explains how companies often pay too much -- and predictably never realize the promises of increased performance and competitiveness -- in their quest to acquire other companies. Armed with extensive evidence, Sirower destroys the popular notion that the acquisition premium represents potential value. He provides the first formal and functional definition for synergy -- the specific increases in performance beyond those already expected for companies to achieve independently. Sirower's refreshing nuts-and-bolts analysis of the fundamentals behind acquisition performance cuts sharply through the existing folklore surrounding failed acquisitions, such as lack of "strategic fit" or corporate culture problems, and gives managers the tools to avoid predictable losses in acquisition decisions. Using several detailed examples of recent major acquisitions and through his masterful integration and extension of techniques from finance and business strategy, Sirower reveals: * The unique business gamble that acquisitions represent * The managerial challenges already embedded in current stock prices * The competitive conditions that must be met and the organizational cornerstones that must be in place for any possibility of synergy * The precise Required Performance Improvements (RPIs) implicitly embedded in acquisition premiums and the reasons why these RPIs normally dwarf realistic performance gains * The seductiveness and danger of sophisticated valuation models so often used by advisers The Synergy Trap is the first exposé of its kind to prove that the tendency of managers to succumb to the "up the ante" philosophy in acquisitions often leads to disastrous ends for their shareholders. Sirower shows that companies must meticulously plan -- and account for huge uncertainties -- before deciding to enter the acquisition game. To date, Sirower's work is the most comprehensive and rigorous, yet practical, analysis of the drivers of acquisition performance. This definitive book will become required reading for managers, corporate directors, consultants, investors, bankers, and academics involved in the mergers and acquisitions arena.

Review Quotes

Alfred Rappaport The Leonard Spacek Professor Emeritus, J. L. Kellogg Graduate School of Management, Northwestern University; Co-Founder, The ALCAR Group Inc. An excellent antidote for the CEO willing to pay steep acquisition premiums without fully acknowledging the increases in performance required before any value is created. As Sirower's many examples demonstrate, the winning bid too often materializes as a significant transfer of value from the acquirer's to the seller's shareholders.

Charles R. Shoemate Chairman, President, and CEO, CPC International Inc. Every CEO and Corporate Director who has been in the path of the "WOW! GRAB IT!" acquisition locomotive should read this book!

John E. Stuart Chairman and CEO, ALCO Standard Corporation The first book on acquisitions I've read which actually makes sense. Dissects and explains in understandable terms why and how they can actually diminish shareholder value. I highly recommend it.

Kathryn Rudie Harrigan Henry R. Kravis Professor OF Business Leadership, Graduate School OF Business, Columbia University "The Synergy Trap" is a stark benchmark for assessing immediately whether acquisition premiums will be wasted, whether shareholder value will be destroyed.

Robert A G. Monks and Nell Minow Principals of Lens Mark Sirower's book provides welcome and indisputable documentation of corporate management and director mistakes and abuses in the name of a vague concept of "synergy." "The Synergy Trap" will be an important aid to managers and directors who are evaluating business combinations, and to the shareholders who are evaluating the managers and directors.

Robert Cizik Chairman and CEO, Cooper Industries, Inc. (retired) A refreshingly revealing book on the "acquisition game" and the reasons why most are DOA (dead on arrival). Food for thought for those CEO's who recommend acquisitions and, perhaps more importantly, those directors who must approve those recommendations.

Roy C. Smith Professor OF Finance, Stern School of Business, New York University, Limited Partner, Goldman, Sachs & Co. Should be of great interest to directors of public corporations and investing institutions. Sirower's findings suggest that managers need to be more vigorously restrained, unless they are able to meet higher standards by much tougher-minded independent board members.

Alfred Rappaport

The Leonard Spacek Professor Emeritus, J. L. Kellogg Graduate School of Management, Northwestern University; Co-Founder, The ALCAR Group Inc.

An excellent antidote for the CEO willing to pay steep acquisition premiums without fully acknowledging the increases in performance required before any value is created. As Sirower's many examples demonstrate, the winning bid too often materializes as a significant transfer of value from the acquirer's to the seller's shareholders.

Charles R. Shoemate

Chairman, President, and CEO, CPC International Inc.

Every CEO and Corporate Director who has been in the path of the "WOW! GRAB IT!" acquisition locomotive should read this book!

John E. Stuart

Chairman and CEO, ALCO Standard Corporation

The first book on acquisitions I've read which actually makes sense. Dissects and explains in understandable terms why and how they can actually diminish shareholder value. I highly recommend it.

Robert Cizik

Chairman and CEO, Cooper Industries, Inc. (retired)

A refreshingly revealing book on the "acquisition game" and the reasons why most are DOA (dead on arrival). Food for thought for those CEO's who recommend acquisitions and, perhaps more importantly, those directors who must approve those recommendations.

Roy C. Smith

Professor OF Finance, Stern School of Business, New York University, Limited Partner, Goldman, Sachs & Co.

Should be of great interest to directors of public corporations and investing institutions. Sirower's findings suggest that managers need to be more vigorously restrained, unless they are able to meet higher standards by much tougher-minded independent board members.

About the Author

Mark L. Sirower teaches business strategy and competitive analysis at the Stern School of Business at New York University. He speaks frequently on creating value through mergers and acquisitions for major corporations and in a variety of public forums. The Synergy Trap is based on his pathbreaking Columbia University doctoral thesis. He lives in Manhattan.