The Pre-Acquisition Evaluation of Target Firms and Cross Border Acquisition Performance

Abstract

The paper investigates the impact of the pre-acquisition evaluation of target firms on the performance of cross border acquisitions using data from a sample of acquisitions made by UK firms. We find that acquiring firms do not perceive target evaluation as simply a financial assessment but as a detailed investigation that tests the feasibility of the proposed acquisition. The findings provide reasonable support for the study’s hypothesis, suggesting that systematic evaluation of the target firm enhances acquisition performance. Thorough evaluation of the strategic and cultural fit is found to positively influence acquisition success. Moreover, the analysis reveals that detailed evaluation of the target firm’s employee and business capability improves the acquisition performance. The managerial implications of the findings and directions for future research are also discussed.