Managing M&A experience and potential synergies pre-formation

For our MBA course on Alliances, Mergers and Networks we held 12 interviews (of which I did 2) with M&A managers, M&A consultants and founders of acquired firms. This resulted in 6 papers focused on the pre-formation process of acquisitions. My paper looks at the acquisition experience in the pre-formation process and combines theory with methods found during the interviews which experienced firms use to leverage their acquisition experience.  Acquisition experience in the pre-formation process is found to have a positive influence on potential synergy realization and is moderated by target similarity. Based on the 12 interviews a management matrix is developed that can be used to by managers to reap the benefits of acquisition experience.

I really enjoyed the process of the research as preparation for the final master thesis. The field of M&A presented to be a fascinating world! Enjoy the read or skip to the management matrix to find how you can best manage acquisition experience in the pre-formation given your level of current acquisition experience.

Managing the influence of previous M&A experience on potential synergies in the pre-formation process.



While the intuitive expectation is that M&A experience would be positively related with M&A performance the literature shows mixed results (Haleblian et al., 2010; King et al, 2003) and frequently fails to positively relate acquisition experience to acquisition performance (Haleblian & Finkelstein, 1999). While some acquirers with acquisition habits successfully perform acquisitions to gain market power, it seems that generally acquirers fail to realize this potential from acquisition experience (Hayward, 2002). The academic literature on acquisition experience suggest different moderating influences on the possible relation between acquisition experience and firm performance. This makes theoretical integration and the applicability for managers difficult.

The acquisition process is moderated by many conditions that can influence the final acquisition performance (Haleblian et al.,2010). It is also suggested that there might be an existence of unidentified variables that may explain the significant variance in post-formation performance (King et al., 2003). These unidentified variables could have an influence on the effect of acquisition experience on performance and be the cause of the mixed research results.

I argue that the mixed results in previous acquisition experience research are due to the broad scope used. Most papers analyze the formation process as a whole without a clear distinction between pre- and post-acquisition process and those that focuses on the post-formation process and performance still shows mixed results due to the complexities and interdependent variables in the integration stage (Larsson & Finkelstein, 1999) and unidentified variables that influence the post-formation process (King et al., 2003).

Most of the existing literature on acquisition experience analyze the performance or success in the post-formation process, while the influence in the pre-formation process has been largely ignored. In this paper I answer the following research question: How does acquisition experience influence the potential synergy realization in the pre-formation process, and how can this be managed?

This paper looks at the influence of acquisition experience on the success in the pre-formation process and contributes by explaining how this can be managed in practice. The dependent success variable is not defined as performance, but as the potential synergy realization. By doing this the inconclusive influence of other variables mainly in the post-formation process can be excluded and with this new scope it’s possible to arrive at new insights on acquisition experience in this pre-formation process.

Where previous large-sample studies provide limited new insights into the factors that influence M&A outcomes (Healy et al., 1992) I use qualitative research to study the effect of acquisition experience in the pre-formation process in more detail. Applying the existing theories to the pre-formation process and combining it’s predictions with qualitative research from 12 interviews that were held with M&A consultants and managers with M&A experience about the pre-formation process.

This paper starts by analyzing the existing literature and potential moderators on the acquisition experience effect. Combined with the findings from the interviews a conceptual model is developed in which I argue that acquisition experience can be managed to realize higher synergy potential. This is connected further with finding from the interviews to develop a management matrix which managers can use to analyze the effects and the aspects of acquisition experience in the pre-formation process given their level of acquisition experience. Inexperienced acquirers can use the matrix to analyze opportunities on how to escape from the negative effects of low acquisition experience.

Theoretical background



This paper focuses on the pre-formation part of a merger or acquisition. The pre-formation process starts from the first step of intent or research into an acquisition target till the point where the final contract is signed. After the signing of the contract the post-formation (integration) process starts.


Potential synergy realization

The M&A literature on acquisition experience presents a couple of ways to approach the dependent ‘success’ variable. The dependent variable in acquisition experience research is often approached as: acquisition performance (Heleblian & Finkelstein, 1999; Haywards, 2002), announcement returns (Haleblian & Finkelstein, 2002), or even as part of the performance of a whole acquisition program (Laamanen & Keil, 2008).

The existing M&A literature on acquisition experience often looks at the (stock) performance in the post-formation process. Whether it’s at day 0 at the announcement, half a year into the integration or final results of the post-formation process. Healy et al. (1992) argue that stock price performance studies are not able to determine the gains of an M&A or identify the sources of these gains. I argue that by focusing on the success measures of the pre- and post-formation stages independently, the sources of these gains can be identify better and that the influence of unidentified moderating variables (King et al., 2003) in the post-formation process can be left out. The success of the pre-formation process does not guarantee success in the post-formation process which is greatly dependent on drivers of post-formation integration (Epstein, 2004).

Figure 1. Integrative Merger & Integration modelacquisition potential synergy realization

In this paper the dependent ‘success’ variable in this pre-formation process is defined as the potential synergy realization. These potential synergies arise in the pre-formation planning. The potential synergy realization is comparible with the combination potential where post-formation process starts with and has a direct and non-direct effect on the final realized synergies (Larsson & Frinkelstein, 1999).

Organizational learning

To make predictions of the influence of acquisition experience in the pre-formation process a organization learning perspective is used to analyze the existing acquisition experience literature.

The organizational learning perspective explains how organizations learn form direct experience and even from experience of others. According to this perspective organizations learn by encoding history into their routines which in turn guide behavior. Experience is encode into conceptual frameworks and the likely hood these routines are used increases as they are associated with success (Levitt & March, 1988).

Acquisition experience

Haleblian & Finkelstein (1999) find that the effect of prior acquisition experience on the performance of acquisitions is U-shaped instead of linear and that it can be positive as well as negative. Using a behavioral learning theory from psychology they explain this effect. Firms start with a baseline at their first acquisition, but due inexperience make inappropriate generalizations of their acquisition experience at following dissimilar acquisition. Once firms gain sufficient acquisition experience they start to appropriately discriminate between acquisitions increasing performance again.

Laamanen & Keil (2008) suggest that acquisition experience has a more complex relationship with acquisition performance. From a acquisition program-level perspective they find that acquisition experience has a negative direct effect on acquisition performance, but a positive indirect moderation effect on the negative effects of high acquisition rates and variability of the rates. Acquisition programs can benefit from experience by learning which capabilities they have to manage an acquisition, the optimal number of firms to acquire, timing and the type of firms to acquire.

Other authors (Zello & Winter, 2002; Hayward, 2002) argue that experience alone is not sufficient and doesn’t ensure acquisition performance on its own. Zollo & Winter (2002) find no direct relation between experience and acquisition performance, but state that codification of experience leads to higher acquisition performance. Especially for inexperienced acquirers codification can moderate the negative effects of generalization due to high heterogeneity in task experience.

Hayward (2002) finds that prior acquisition performance is positively related with acquisition performance, if the target isn’t too similar or dissimilar to the previous acquisition and if it’s not temporally too close or distant from the previous acquisition. Experience per se is insufficient, but also necessary for acquisition learning. With an organizational learning perspective Hayward (2002) formulated that organizations must learn how to select the right acquisition and that this relates to the quality and not the quantity of the firm’s experience.

Although it seems intuitive that M&A experience would be positively related to M&A performance the literature shows mixed results. Acquisition experience is presented both as a independent variable with a positive and negative influence on performance as well as a moderator that moderates effects on performance (Haleblian et al., 2010). These unclear relations make managing acquisition experience to realize a positive effect difficult. I argue that these mixed results are due the broad scope, unidentified variables in the formation process as a whole and difficulty in measuring the influence on acquisition success with financial performance measures.

Overall the literature finds many interrelated variables and given the various circumstances acquisition experience could be managed to result in a direct, indirect or U-shaped positive effect.

Target similarity

The theory on acquisition experience suggests that target similarity is an important moderator that influences the effect of acquisition experience. This moderator fits with the organizational learning perspective.

The more similar a target is to the acquirers prior targets, the better the acquisition performs. Haleblian & Finkelstein (1999) find a positive relation of target similarity with acquisition performance. Hayward (2002) finds that acquisition performance is positively related with acquisitions that are not highly similar or dissimilar to the focal acquisition.

This effect is especially important for inexperienced firms that can make wrong generalizations of their acquisition experience due to high heterogeneity in task experience (Zollo & Winter , 2002). Target similarity especially helps inexperienced firms to moderate the negative effect of wrongly generalizing previous acquisition experience to unrelated current targets. While highly experienced firms are better able to discriminate between acquisitions.


Theoretical framework

Figure 2. Theoretical framework
synergy realization framework


Using an organizational learning perspective combined with the existing literature acquisition experience will be gained by trail-and-error and when successful, this experience is turned into routines of the organization and thus has a positive effect on the potential synergy realization.
Within this perspective acquisition experience is positively related to the ability to judge targets and estimate synergy expectations. Intuitively a higher level of acquisition experience leads to better and more careful pre-merger planning which creates these potential synergies. With experience its possible to identify better acquisition targets and manage the pre-formation process better than with less experience. Trough organizational learning the organization and its managers learn from M&A experience and become better at managing the pre-formation process. Without experience it will be hard for managers to realize high potential synergies. Learning seems to play an important role in realizing this positive effect.

This effect is moderated by target similarity. As target similarity increase the on the acquisition experience effect becomes more positive and increases this effect. Target similarity has the strongest moderating effect on firms with low acquisition experience.

Here target similar is the similarity to the previous target. This can also be targets that are similar to the firm, but from a organizational learning perspective I argue that similarity to the previous target and experience with these processes is important. Thus the concept of industry familiarity is approached more in a process way where experience is gained, than in a knowledge perspective of having knowledge of the target industry compared to the own industry.  Whether the target is similar to the firm or not doesn’t matter form a learning perspective.


The findings from the interviews confirm the developed theoretical model on the influence of acquisition experience in the pre-formation process. A positive effect of acquisition experience was found, while problems that arise due to inexperience were also found in the interviews. Target similarity is also found to be related with acquisition experience and can be managed to stimulate its positive effect.

Importance of experience in the pre-formation process

The interviews indicate that acquisition experience is very important in the whole pre-formation process. The more experience the bigger the change to do everything right without making mistakes. Experience helps to oversee the processes and helps to know what to say and when. Firms with experience indicate that they use this information to avoid failures. Without acquisition experience it would be hard to realize potential synergies. Experience is so important in the pre-formation process that some indicated the need to hire and external advisor to access acquisition experience.

Level of acquisition experience

Acquisition experience in the pre-formation process is managed in different ways depending on the level of acquisition experience.

High levels of acquisition experience are used by managers in the pre-formation process to be realistic about the potential synergies and in which areas these are possible. Firms with high levels of acquisition experience create and use benchmarks and detailed planning to estimate the potential synergies. Another important factor found in the interviews is speed. Acquisition experience helps to increase speed by getting to negotiations quicker and the ability to accesses agreements.
The interviews show that managers create benchmarks and checklists based on their experience to make the pre-formation process more efficient and to estimate the potential synergies. Over time these firms with many previous acquisitions and high levels of acquisition experience develop a rigid process to manage and benefit from this experience.

Low levels of acquisition experience are not familiar with all the necessary processes which will make the pre-formation process long and difficult. With higher levels of experience they would be able to go through the process quicker and know when to get to making the deal.

Firms who lack acquisition experience try to access experience from outside the company. An external advisor or consultancy is approached to advice during the pre-formation process or to do certain parts of the process where the firm lacks experience. The processes of Due Diligence is often conducted by external consultancies.

Target similarity

Experience with a similar type of target increases the efficiencies and potential synergies that can be realized in the pre-formation process. Target similarity makes this process easier, because the departments and specific methods that are evolved are familiar, thus enabling the use of previous experience. Many of the steps in the pre-formation process are the same and some, for example industry evaluation, don’t need to be done again. Experience in evaluating the value of assets for similar firms can also save times and money spend in the pre-formation.

The interviews also indicate that the influence of similarity is low for firms with high levels of acquisition experience, because of the strict acquisition process that was developed to prevent wrong generalizations.


Management matrix

The results of the different levels of both acquisition experience and target similarity and how these are managed are translated into a management matrix.

Figure 3. Acquisition experience management model
acquisition experience matrix

This matrix can be used by managers in the pre-formation process to analyze the effects of acquisition experience given their level of experience. Firms that find negative effects can escape these negative effects by increasing target similarity or by using the suggested management processes. Inexperienced firms can learn from the management processes that experienced firms used to reap the benefits of acquisition experience.

Firms with low acquisition experience see little or even a negative effect of experience due to wrong generalizations. Without accessing external experience in the form fo an advisor or consultancy it will be hard to realize synergies. By increasing target similarity this negative effect can be moderated.

Firms with high acquisition experience benefit the most form acquisition experience and trough learning developed processes that enables them to increase efficiency and speed in the pre-formation process. Target similarity mainly effects firms with low acquisition experience, but can also help experienced firms to increase their pre-formation process efficiencies.



By focusing the scope on the pre-formation process and applying a organization learning perspective combined with the existing literature on acquisition experience I was able to develop a theoretical framework that predicted the positive effect of acquisition experience on potential synergy realization. This effect is indeed found to be moderated by target similarity. In the interviews I found empirical evidence of the positive effect of acquisition experience, the importance and how the acquisition experience gets managed to benefit from. From a organizational learning rationale I argue that low levels of experience that are not moderated by target similarity can experience a negative effect that becomes positive as experience increases.

Acquisition experience is found to be an important aspect in the pre-formation process, which can be managed. Increasing acquisition experience through organizational learning has a increasing positive effect on the potential synergy realization in the pre-formation process. Firms that lack acquisition experience will have more difficulties to realize potential synergies and more often access external acquisition experience by hiring a consultancy for more parts of the process. Firms with higher levels of acquisition experience were found to create processes that increase the efficiency during the pre-formation process and their ability to estimate potential synergies.

Target similarity moderates the positive effects of acquisition experience mostly for firms with low levels of acquisition experience. These firms can especially benefit from target similarity where some parts of the pre-formation process can be similar and can help them to increase efficiency.

The effects of acquisition experience and target similarity for each high and low level used to develop an acquisition experience management model. This model can be used by managers to escape from the negative effects of low acquisition experience or to find the effects and management methods that can be used given their level of experience and similarity of their current target. Firms with low levels of experience can escape these negative effects by increasing target similarity. For each quadrant a set of management practices is suggested that firms were found to use to reap the most benefits of their acquisition experience.


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One thought on “Managing M&A experience and potential synergies pre-formation

  1. Antonio, thank you for this publication. Very interesting and easy to understand findings. I’m reading around in order to gain more knowledge and information for the master thesis and truly appreciate such publications as yours. They are very helpful when people seeking ways to quickly gain expertise in new fields.

    Wish you best in your work and new projects.