Is bigger really always better?

Creating Value from Mergers and Acquisitions
November 12, 2004

The world is governed by big corporations brought about by an insatiable appetite for mergers and takeovers - all designed to eliminate competition, shed labour and create monopolies and fat profits for some.

Managers would rarely admit that they may be cementing their own positions rather than pursuing shareholder value, and many an empire built on mergers and acquisitions has floundered.

The topic of mergers and acquisitions is now covered on undergraduate and postgraduate degrees in economics, finance, business and accounting, and this weighty, well-written, well-researched and easy-to-read tome is set to become a standard work. It covers history, strategy, financing, accounting, regulations, post-acquisition integration and thinking about whether the acquisition has been successful. It also contains plenty of useful US and European statistics, examples and references for further reading.

While the book offers advice on various valuation models, one wonders whether these models are simply a peg for rationalising what the corporate players want to justify. Indeed, it warns against some accounting-based models of valuation as the numbers can be illusory. It offers advice on valuing options but does not explain why the Nobel laureates running Long Term Capital Management could not do it.

Much of the research cited is from the neoclassical, positivist traditions, which is not the author's fault as these traditions have squeezed out more interdisciplinary approaches.

But perhaps the next edition could also devote some space to the social consequences of mergers and acquisitions, which encourage a greater concentration of economic power - and with it social and political power - in corporations and their executives.

Prem Sikka is professor of accounting, University of Essex.

Creating Value from Mergers and Acquisitions: The Challenges

Author - Sudi Sudarsanam
Publisher - Prentice Hall
Pages - 593
Price - £35.99
ISBN - 0 201 72150 3

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