- Managerial hubris. Roll (1986) argued that
managerialpridewasattherootoftheoverpayments
in many acquisitions.
34 Acquiringfirmsseemtoconsistentlyoverestimate
how much synergy there is in mergers and
underestimate howmuchtime it willtake themto
deliverthissynergy.Thismayseemirrationalgiven
thetrackrecordthatotheracquiring firms haveon
both counts. However, it reflects the belief that
managers seem to have that they are better than
averageandthusimmunefromsuchmistakes.Roll’s
argument hasbeen backedup byempirical studies
thatfindthatacquisitionpremiumstendtoreflectthe
egos of the acquiring firm CEOs. Hayward and
Hambrick(1997),forinstance,lookedat 106 major
acquisitionsandmeasuredthehubrisofCEOsusing
threeproxies—recent organizationalsuccess,media
praise,andrelativepower(measuredbytheratioof
the CEO’s compensation to the next-highest-paid
employee).
35 Theyfoundthathigh-profile,overlyself-confident
CEOs consistently overpaid on acquisitions. - Failure to plan for synergy. The KPMG study
referencedearlieronpostmergersynergiesalsonoted
that many firms do not have explicit plans for
deliveringsynergy.Asafollow-up,nooneinthese
organizationsisheldresponsiblefor generatingthe
synergy. Firms that do not work at generating
synergywillfindthatthereisnosynergy;afterall,
costs don’t cut themselves and growth requires
investment decisions.
Increasing the Likelihood of Success