Acquiring Small and Medium-Sized Companies: A Study of Corporate Decision Behavior

Abstract

This field research study investigated corporate acquisition decisions made by managers in U.S. manufacturing and conglomerate firms. The introductory chapters review organizational decision theories and empirical research on organizational and acquisition decision making. The thesis presents and investigates hypotheses for two descriptive models: a prediction model and a decision-process model. Through mail questionnaires, data were gathered about 28 acquisitions completed between October 1, 1979 and March 31, 1980. Managers were asked for retrospective information about decision activities and for a current assessment of the acquired company\u27s performance . Twenty-six companies made the acquisitions: nine very large companies with 1979 sales of more than $450 million and seventeen smaller companies. Of the 28 acquired companies, 14 had 1979 sales of$1 to $10 million, 13 had sales of$10 to $35 million, and one had sales of more than$350 million. The results of correlation and regression analyses indicate that moderate levels of participation in acquisition subdecisions and direct contact with the prospect are related to successful acquisitions, but higher levels of both activities are related to lower levels of success. Also, increased participation did not increase the perceived effectiveness of implementation activities. The amount of formal analytical activity and CEO involvement are not related to successful acquisitions. CEO involvement seems to depend on the size of the acquiring company, with CEOs in smaller companies more involved in making small and medium-sized acquisitions. Managers use more complex and extensive decision processes when an unrelated business is investigated, but the process is apparently often ineffective. Firms that had made more acquisitions also had different decision processes, including lower levels of participation and less use of information sources. Both experience making acquisitions and acquiring a related business are good predictors of a successful acquisition. Finally, a planned search for prospects is not related to more successful acquisitions. Only initiation by an unusual source alters the decision process, and then more CEO involvement and intensive search occur