Contextualizing the Pre-Deal Phase of Mergers and Acquisitions: A Strategic Decision Making Process Perspective

Shepherd, Neil and Lou, Bowen (2024) Contextualizing the Pre-Deal Phase of Mergers and Acquisitions: A Strategic Decision Making Process Perspective. In: Advances in Mergers & Acquisitions :. Emerald.

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Abstract

Despite its enduring popularity as a critical strategy for corporate growth and transformation, most mergers and acquisitions (M&A) fail to create value for firm stakeholders. While post-merger integration is widely recognized as the phase where value destruction often occurs, the pre-deal decision-making phase—characterized by commercially sensitive, confidential, and highly judgmental decisions—plays an equally pivotal role. Key decisions, such as selecting the target company and determining the purchase price, are fraught with complexity and ambiguity. Mistakes made during this phase inevitably surface in post-merger integration, fundamentally influencing the overall success or failure of the acquisition. Acquisitions are complex, ambiguous, and often controversial strategic decisions. The lack of theoretical insights and empirical evidence surrounding pre-deal decision-making hinders a comprehensive understanding of this critical stage. This chapter develops an integrative framework that contextualizes the pre-deal phase of M&A by integrating four key categories of contextual factors: top management team (TMT), firm characteristics, deal-specific characteristics, and environmental factors. By advancing the theoretical understanding of how these factors shape pre-deal decision-making, this chapter provides a contextualized explanation of the processes underpinning acquisition performance, offering valuable insights for both researchers and practitioners.