A Lightweight Note on Success in Mergers and Acquisitions

This two-page note discusses how and when mergers and acquisitions make sense. Written in 2004, the conclusions still hold in 2025. The note contains academic citations that may be of interest to researchers.

Merger and acquisition activity is picking up. The first quarter saw the highest level of global M&A activity since 2000. It may therefore be interesting to review what we have learned about the science of M&A lately. Perhaps surprisingly, there is growing evidence that making acquisitions is one of the best and safest ways to sustain shareholder value.

Yet should we not have learned that M&A usually does not make sense? That most acquisitions destroy value? That deal making is prompted by CEO vanity and not by economic reality? Not necessarily. Contrary to popular opinion, most M&A deals succeed and add value to share holders and society.

Conventional wisdom holds that much less than half of all mergers succeed. The facts tell a different story. This story is well known in academic circles but is at best only anecdotally known among business executives. This review summarizes the most important research findings and explains why executives pursue acquisitions. It is not because of folly, but rather because it is in the interest of their shareholders.