The Synergy Trap: How Companies Lose the Acquisition Game

The Synergy Trap: How Companies Lose the Acquisition Game by Mark Sirower. New York: Free Press, 1997, 289 pp., $25.00, cloth [ISBN: 0-83255-0].

In The Synergy Trap, Columbia-trained management researcher Mark Sirower observes that companies lose the acquisition game because they pay too much, forecast too brightly and move too quickly. Building on past research in economics that shows that the shares of acquiring firms decline in value in the wake of acquisitions, Sirower confirms these findings and explains them in a way that gives central consideration to the role of management. The substance and implications of this explanation should be of interest to a range of organizational scholars, especially those with interests in strategy, corporate governance and managerial decision making.

The thesis of the book is that managers overestimate the potential gains that can be realized through synergy. The term synergy, which refers to the benefits that accrue in excess of those resulting from the simple combination of two previously independent firms, has a history of being either uncritically invoked or cynically dismissed. While it is a favorite concept among managers and advisors seeking to explain the strategic value of acquisitions, it also appears as the butt of employee jokes in Dilbert cartoons. Sirower's book moves beyond these extremes by arguing that synergy is possible but very difficult for companies to achieve. This view, which he calls the "synergy limitation view," holds that there are "severe limits to attainable synergies (i.e., a low expected value) in a competitive market relative to what most acquisition premiums would require" (p. 119).

Sirower points out that synergy can be quickly derailed by a...