Creating Value in Post-Acquisition Integration Processes

Harbir Singh and Maurizio Zollo

Center for Financial Institutions Working Papers from Wharton School Center for Financial Institutions, University of Pennsylvania

Abstract: After the Citigroup, the BankAmerica/Nationsbank and the Wells Fargo/ Norwest announcements earlier this year, there is very little that can surprise an observer of the US bank merger arena. Already this year, $813 billion of deals have been announced in the US only, compared with $920 billion during all 1997 (source: Financial Times, June 29). Banking is obviously taking the lion’s share with close to 30% of the volume. Eight of the largest fifteen deals in history (worldwide) have been completed in the US banking industry, including the largest two. In spite of all this determination in pursuing acquisitive growth, however, the drivers for value creation in acquisition processes are far from being established. The CEO who looks around for advice is typically welcomed with truisms such as “don’t pay too much” or “pay attention to integration”. Although the literature has shown no value creation to the acquiring firm on average, the performance distribution has a very large, and largely unexplained, variance. This study focuses on post-acquisition integration decisions and on the mechanisms behind the creation of an organizational capability specialized in the management of integration processes. We believe, and the data confirm this belief to a large extent, that these two sets of explanations can supply the key to interpret the variance between successful and unsuccessful acquisitions, and thus to understand how value is created and under what conditions this might or might not happen. What you have in your hands now is a summary of the most important results of the study. We hope you find it as interesting as the study itself has been for us.

Date: 1998-08
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