Synergy Evaluation in Mergers and Acquisitions : An Attention-Based-View

Bauer, Florian and Friesl, Martin (2024) Synergy Evaluation in Mergers and Acquisitions : An Attention-Based-View. Journal of Management Studies, 61 (1). pp. 37-68. ISSN 0022-2380

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Abstract

A core objective of corporate development relates to scope decisions, which regularly involve mergers and acquisitions (M&A). The dominant idea behind M&A is often captured by the umbrella term ‘synergy’. Yet, while performance is the key variable of most M&A studies, how firms arrive at a particular synergetic value for a target firm is not well understood. In this article, we contribute to this body of research. We argue that understanding the determination of synergies in M&A requires a look at the mechanisms that guide managerial attention towards specific valuation practices and synergy types. Specifically, by drawing on the attention-based view of the firm, we show that the evaluation of synergies cannot be divorced from the underlying attention structure in the M&A context and the various valuation practices that constitute different synergy types. Our analysis suggests that synergies often do not reflect the true potential of acquisitions. We reveal that this is due to an attentional crowding-out effect: The congruence of M&A attention structures with valuation practices for functional synergies crowd out the attention allocation to business models and strategic synergies. We describe the characteristics of this crowding-out effect as well as its implications.