An acquisition delivers nothing extra to the buyer on average, and often even a little less. This is shown by a meta-analysis of research into the performance of acquiring companies. The main causes are too high a price and a combination of the businesses that runs less smoothly than planned. As a buyer, you can partly steer both yourself.
In short
- On average, a buyer's performance does not improve through an acquisition. It even declines slightly.
- Buyers of a private company and small buyers do better on average than buyers of listed companies and large buyers.
- Thorough due diligence, part of the price depending on later results and a plan for the integration reduce the risk.
In this article
- Does an acquisition deliver anything for the buyer on average?
- How much value does a buyer lose in an acquisition?
- Why do buyers often pay too much?
- Does it matter what kind of company you buy?
- Why is the period after the acquisition often disappointing?
- How do you as a buyer reduce the chance of a disappointment?
Does an acquisition deliver anything for the buyer on average?
No, not on average. A large review of research found that the performance of acquiring companies does not improve through their acquisitions. On average, it even declines to a modest extent (King, Dalton, Daily & Covin, 2004).
That review is a meta-analysis, a study that combines the results of many earlier studies into one estimate. The authors looked at the factors studied most often in earlier research. Across all those factors, the picture stayed the same: no gain for the buyer, and a small loss (King et al., 2004).
The researchers also found indications that factors not yet studied explain an important part of the difference between successful and failed acquisitions (King et al., 2004). So there is no simple recipe for a successful acquisition. What is known is mainly about what goes wrong.
A more recent review of the research literature reaches a similar conclusion. Acquiring companies often perform worse than comparable companies that acquire nothing, especially when they take over listed companies. A positive first reaction from the stock market also often does not last in the long term (Renneboog & Vansteenkiste, 2019).
How much value does a buyer lose in an acquisition?
It varies widely by period and by deal. In the United States, shareholders of acquiring listed companies lost a combined 240 billion dollars around the announcement of their acquisitions between 1998 and 2001. That is 12 cents per dollar spent (Moeller, Schlingemann & Stulz, 2005).
In the whole of the 1980s, that loss was much smaller: 7 billion dollars, or 1.6 cents per dollar. The large loss around 2000 was mainly caused by a small number of acquisitions by companies with a very high stock market value. Without those deals, according to the researchers, acquiring shareholders would actually have gained (Moeller et al., 2005).
These figures measure the stock market's reaction at the announcement, not the profit in the years after. They do show how investors judge the buyer's price and plans. The companies that made deals with large losses also performed poorly afterwards (Moeller et al., 2005). In this way, a few bad acquisitions can determine the overall picture.
Why do buyers often pay too much?
An important reason is overconfidence. Buyers often overestimate the value of the company they are buying and their own abilities. As a result, they pay a price that the acquisition does not earn back.
Research among large US companies between 1980 and 1994 shows this clearly. A CEO counted as overconfident if, among other things, he kept too much of his personal wealth invested in his own company, or if the press described him as very self-assured. The odds (the ratio between doing and not doing) that such a CEO made an acquisition were 65% higher than for other CEOs (Malmendier & Tate, 2008).
Investors saw this too. At the announcement of an acquisition, the share price of companies with an overconfident CEO fell by 0.90% on average, against 0.12% at the other companies (Malmendier & Tate, 2008). The effect was strongest for acquisitions outside the company's own industry that could be paid for without external financing.
For a business owner in an SME, that last point matters most. If you pay for an acquisition from your own funds, no bank or investor takes a critical look at your assumptions. A second, independent calculation of the value and the expected benefits fills that role.
Does it matter what kind of company you buy?
Yes. Buyers of a private company or a subsidiary gain value on average at the announcement. Buyers of a listed company lose value on average (Fuller, Netter & Stegemoller, 2002).
That study looked at companies that made five or more acquisitions in a short period. Because the same buyer bought different kinds of companies, the researchers could separate the effect of the type of target from the buyer itself. They explain the difference partly by a liquidity discount: a company that is not traded on the stock market is harder to sell and therefore often cheaper (Fuller et al., 2002).
The size of the buyer also matters. In a study of 12,023 acquisitions by listed companies between 1980 and 2001, the share price reaction at the announcement was roughly two percentage points better for small buyers than for large buyers. This held regardless of the payment method and regardless of whether the company bought was listed (Moeller, Schlingemann & Stulz, 2004).
For SMEs this is good news, but no guarantee. An SME acquisition is almost always the purchase of a private company by a small buyer. The buyers studied were listed themselves, though, and the findings are averages and associations, not cause and effect. So the figures say something about the odds, not about your own deal.
Why is the period after the acquisition often disappointing?
Because the benefits only come when two companies genuinely work together, and that takes more time and effort than expected. Differences in ways of working and culture play a part, but not always a negative one.
A meta-analysis of 46 studies covering a combined 10,710 acquisitions looked at the role of cultural differences. Those differences affected how the people grew together, whether the expected benefits were achieved and the value for shareholders in different and sometimes opposing ways (Stahl & Voigt, 2008). So a cultural difference can lead to clashes, but also to new knowledge.
Which effect prevailed depended partly on how related the companies were and which cultural differences were involved (Stahl & Voigt, 2008). The review by Renneboog and Vansteenkiste also names the degree to which buyer and target are related and complement each other as a factor in performance after the acquisition (Renneboog & Vansteenkiste, 2019).
In the Netherlands, you also often take over the staff in an acquisition, with their existing agreements. In a transfer of undertaking (the transfer of a business or part of it to a new owner), the rights and obligations under the employment contracts pass to the buyer by operation of law, so automatically (Article 7:663 of the Dutch Civil Code). As a result, you cannot simply align differences in pay and terms of employment.
How do you as a buyer reduce the chance of a disappointment?
By testing the price, investigating the risks in advance and placing part of the uncertainty with the seller. A plan for the first months after the acquisition also helps. These are levers you control yourself.
Start with due diligence: a check of whether the seller's information is correct and which opportunities and risks the business has. The KVK (the Dutch Chamber of Commerce) points out that as a buyer you have a duty to investigate. At a minimum, check the figures and the running contracts, and also look at the staff: the number of people, their hours and their wages (KVK, 2026).
Next, consider an earn-out: part of the purchase price that you only pay if the business achieves agreed results after the acquisition. Research into acquisition contracts shows that such agreements are structured to limit the costs of uncertainty about the value. They also limit the risk that a party behaves differently after the deal than agreed (Cain, Denis & Denis, 2011).
Record the price, the payment and the seller's warranties in the acquisition contract (KVK, 2026). Also make a plan for the first months after the acquisition: who decides what, how the staff transfer and which benefits you expect when. Those benefits only arise when the companies work together, not at signing.
These steps do not guarantee success. According to the meta-analysis by King and colleagues, factors not yet studied explain an important part of the difference between successful and failed acquisitions (King et al., 2004). A buyer who does not overpay and takes the integration seriously does avoid the best-known causes of a disappointment.
Sources
- King, D.R., Dalton, D.R., Daily, C.M. & Covin, J.G. (2004). Meta-analyses of post-acquisition performance: indications of unidentified moderators. Strategic Management Journal, 25(2), 187-200. doi.org/10.1002/smj.371
- Renneboog, L. & Vansteenkiste, C. (2019). Failure and success in mergers and acquisitions. Journal of Corporate Finance, 58, 650-699. doi.org/10.1016/j.jcorpfin.2019.07.010
- Moeller, S.B., Schlingemann, F.P. & Stulz, R.M. (2005). Wealth destruction on a massive scale? A study of acquiring-firm returns in the recent merger wave. Journal of Finance, 60(2), 757-782. doi.org/10.1111/j.1540-6261.2005.00745.x
- Malmendier, U. & Tate, G. (2008). Who makes acquisitions? CEO overconfidence and the market's reaction. Journal of Financial Economics, 89(1), 20-43. doi.org/10.1016/j.jfineco.2007.07.002
- Fuller, K., Netter, J. & Stegemoller, M. (2002). What do returns to acquiring firms tell us? Evidence from firms that make many acquisitions. Journal of Finance, 57(4), 1763-1793. doi.org/10.1111/1540-6261.00477
- Moeller, S.B., Schlingemann, F.P. & Stulz, R.M. (2004). Firm size and the gains from acquisitions. Journal of Financial Economics, 73(2), 201-228. doi.org/10.1016/j.jfineco.2003.07.002
- Stahl, G.K. & Voigt, A. (2008). Do cultural differences matter in mergers and acquisitions? A tentative model and examination. Organization Science, 19(1), 160-176. doi.org/10.1287/orsc.1070.0270
- Dutch Civil Code Book 7, Article 663 (rights of the employee in a transfer of undertaking), in force from 8 October 2026. wetten.overheid.nl
- KVK, Taking over a business: where to start and what to look out for (Dutch), updated 15 July 2026. kvk.nl
- Cain, M.D., Denis, D.J. & Denis, D.K. (2011). Earnouts: A study of financial contracting in acquisition agreements. Journal of Accounting and Economics, 51(1-2), 151-170. doi.org/10.1016/j.jacceco.2010.05.001