The Synergy Limitation Paradox

Abstract

The paradox of making acquisitions is that they are difficult to repay — since the market has already priced most attainable operating improvements into the transaction price. By expanding upon Sirower’s (1994) framework for identifying the required performance improvements (RPIs) needed to repay acquisition premiums, an approach is offered for finding combinatorial synergies that will add the necessary, incremental operating improvements to post-acquisition activities.

Keywords: synergy, acquisitions, operating improvements, acquisition premiums, acquisition integration