The trade-off between synergy success and efficiency gains in M&A strategy
ISSN: 1450-2194
Article publication date: 22 June 2018
Issue publication date: 30 July 2018
Abstract
Purpose
This study raises the question of whether the nature of the merger and acquisition (M&A) strategy per se, that is reflected throughout the M&A process, may lead to a potential trade-off between the two main objectives of M&As – synergy success and efficiency gains, which may explain the high failure rate of the M&A strategy. The purpose of this paper is to present a mediation model to explore the potential trade-off that may exist between synergy success and efficiency gains. The model examines whether the change in the workforce size during the M&A process mediates the relationship between the types of M&A and M&A success, resulting in a trade-off.
Design/methodology/approach
The study uses a sample of 394 public firms.
Findings
The study reveals that if the management over-increases the workforce size to realize the synergy potential, then it heightens the risk of the “win synergy-lose efficiency” trade-off, resulting in an increase in revenue growth but a decrease in profitability. The results even show that international M&As lead to an “over” increase in the workforce size to maximize the synergy potential, but at the same time, an increase in the workforce size harms the efficiency gains, resulting in a decrease in profitability. However, vertical and conglomerate M&As may lead neither to synergy success nor to efficiency gains, which reflects a situation of no benefits from the M&A for the acquirer.
Originality/value
The study emphasizes that one of the main challenges in the implementation of the M&A strategy is to strike a balance between the objective of improving efficiency through cutting costs and workforce reduction during the integration stage and the objective of realizing the synergy potential, despite the workforce reduction during the M&A process.
Keywords
Citation
Rozen-Bakher, Z. (2018), "The trade-off between synergy success and efficiency gains in M&A strategy", EuroMed Journal of Business, Vol. 13 No. 2, pp. 163-184. https://doi.org/10.1108/EMJB-07-2017-0026
Publisher
:Emerald Publishing Limited
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