"Value Destruction in Acquisitions: Deal-Driven Orientation, Ignorance and Information Asymmetries"

Abstract

Acquisitions frequently don’t live up to their promises. Previous research has therefore delved into the structural elements and, primarily, post-formation processes affecting acquisition outcomes. In this article, we complement prior explanations by exploring the origins of value destruction in the preacquisition process, hinting at the importance of several underlying micro-level dynamics and their detrimental effects on acquisition performance. Building on a unique dataset of six in-depth case studies, we investigate how firm level, contextual, relational, and personal factors may propel a decision maker’s deal-driven orientation, i.e. their desire to acquire, while preserving their ignorance and even promoting information asymmetries. Our findings contribute to the literature by: (1) exposing the dual role of advisors, who seem to simultaneously generate and escalate momentum; and by (2) highlighting the pregnancy of preacquisition processes for the realization and destruction of value in acquisitions.