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The Synergy Trap [Kindle Edition]

Mark L. Sirower
4.2 out of 5 stars  See all reviews (4 customer reviews)

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Sold by: Simon and Schuster Digital Sales Inc

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Book Description

With acquisition activity running into the trillions of dollars, the acquisition alternative continues to be the favorite corporate growth strategy of this generation's executives. Unfortunately, creating shareholder value remains the most elusive outcome of these corporate strategies. After decades of research and billions of dollars paid in advisory fees, why do these major decisions continue to destroy value?

Building on his groundbreaking research first cited in Business Week, Mark L. Sirower explains how companies often pay too much -- and predictably never realize the promises of increased performance and competitiveness -- in their quest to acquire other companies. Armed with extensive evidence, Sirower destroys the popular notion that the acquisition premium represents potential value. He provides the first formal and functional definition for synergy -- the specific increases in performance beyond those already expected for companies to achieve independently. Sirower's refreshing nuts-and-bolts analysis of the fundamentals behind acquisition performance cuts sharply through the existing folklore surrounding failed acquisitions, such as lack of "strategic fit" or corporate culture problems, and gives managers the tools to avoid predictable losses in acquisition decisions.

Using several detailed examples of recent major acquisitions and through his masterful integration and extension of techniques from finance and business strategy, Sirower reveals:

  • The unique business gamble that acquisitions represent
  • The managerial challenges already embedded in current stock prices
  • The competitive conditions that must be met and the organizational cornerstones that must be in place for any possibility of synergy
  • The precise Required Performance Improvements (RPIs) implicitly embedded in acquisition premiums and the reasons why these RPIs normally dwarf realistic performance gains
  • The seductiveness and danger of sophisticated valuation models so often used by advisers

The Synergy Trap is the first exposé of its kind to prove that the tendency of managers to succumb to the "up the ante" philosophy in acquisitions often leads to disastrous ends for their shareholders. Sirower shows that companies must meticulously plan -- and account for huge uncertainties -- before deciding to enter the acquisition game. To date, Sirower's work is the most comprehensive and rigorous, yet practical, analysis of the drivers of acquisition performance. This definitive book will become required reading for managers, corporate directors, consultants, investors, bankers, and academics involved in the mergers and acquisitions arena.

Editorial Reviews


Kathryn Rudie Harrigan Henry R. Kravis Professor OF Business Leadership, Graduate School OF Business, Columbia University The Synergy Trap is a stark benchmark for assessing immediately whether acquisition premiums will be wasted, whether shareholder value will be destroyed.


Charles R. Shoemate Chairman, President, and CEO, CPC International Inc. Every CEO and Corporate Director who has been in the path of the "WOW! GRAB IT!" acquisition locomotive should read this book!

Robert Cizik Chairman and CEO, Cooper Industries, Inc. (retired) A refreshingly revealing book on the "acquisition game" and the reasons why most are DOA (dead on arrival). Food for thought for those CEO's who recommend acquisitions and, perhaps more importantly, those directors who must approve those recommendations.

John E. Stuart Chairman and CEO, ALCO Standard Corporation The first book on acquisitions I've read which actually makes sense. Dissects and explains in understandable terms why and how they can actually diminish shareholder value. I highly recommend it.

Roy C. Smith Professor OF Finance, Stern School of Business, New York University, Limited Partner, Goldman, Sachs & Co. Should be of great interest to directors of public corporations and investing institutions. Sirower's findings suggest that managers need to be more vigorously restrained, unless they are able to meet higher standards by much tougher-minded independent board members.

Alfred Rappaport The Leonard Spacek Professor Emeritus, J. L. Kellogg Graduate School of Management, Northwestern University; Co-Founder, The ALCAR Group Inc. An excellent antidote for the CEO willing to pay steep acquisition premiums without fully acknowledging the increases in performance required before any value is created. As Sirower's many examples demonstrate, the winning bid too often materializes as a significant transfer of value from the acquirer's to the seller's shareholders.

Robert A G. Monks and Nell Minow Principals of Lens Mark Sirower's book provides welcome and indisputable documentation of corporate management and director mistakes and abuses in the name of a vague concept of "synergy." The Synergy Trap will be an important aid to managers and directors who are evaluating business combinations, and to the shareholders who are evaluating the managers and directors.

Kathryn Rudie Harrigan Henry R. Kravis Professor OF Business Leadership, Graduate School OF Business, Columbia University The Synergy Trap is a stark benchmark for assessing immediately whether acquisition premiums will be wasted, whether shareholder value will be destroyed.

Product Details

  • File Size: 2681 KB
  • Print Length: 304 pages
  • Publisher: Free Press (May 11, 2010)
  • Sold by: Simon and Schuster Digital Sales Inc
  • Language: English
  • ASIN: B003L78632
  • Text-to-Speech: Enabled
  • X-Ray:
  • Word Wise: Not Enabled
  • Lending: Not Enabled
  • Amazon Best Sellers Rank: #616,858 Paid in Kindle Store (See Top 100 Paid in Kindle Store)
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Customer Reviews

4.2 out of 5 stars
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Most Helpful Customer Reviews
17 of 20 people found the following review helpful
3.0 out of 5 stars Interesting reading about how synergy can be a trap October 26, 1999
By A Customer
This is a very easy to read book about how easy you can fall into the trap of paying a high premium for a company without having any concrete plans for how to achive the value gains through the value chain. He describes with some very good examples how to fall into the trap if you dont have a number of conerstones in place before the acquisition. The major cornerstones of synergy are stratigic vision, operating strategy, system integration and power&culture. These four cornerstones are linked closely together.
Chapter three has a discussion about the premium that the acquirer pay.
Part two in the book is an analysis of corporate acquisition strategies. In this analysis i didn't find anything new that I didn't know in advance
So my conclusion would be: an easy to read book with some very good examples of how wrong it can go (eg. sears, AT&T, Time Warner TBS,...), and he put a lot of emphasis on the importance of having the cornerstones of synergy in place before the acquisition as well as a discussion of competitor reations to acquisitions.
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8 of 9 people found the following review helpful
4.0 out of 5 stars The Acquisition Game May 28, 2000
Dr. Sirower does a remarkable job in showing how easy it is to lose the acquisition game by failing to define synergy in terms of real, measurable improvement in competitive advantage. By analysing the acquisition premium with his Required Performance Improvement (RPI) formula, Dr. Sirower shows how to determine in advance when the price is far above the potential value of an acquisition. The way managers who analyse the acquisition premium and concept of synergy can avoid to get caught and how to predict the probability of shareholder losses or gains (although the probability formula is not flawless). Regardless the good work done by Dr. Sirower, I wouldn't be surprised if M&A professionals don't like the book because of its highly critical approach to synergie effects.
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5 of 6 people found the following review helpful
5.0 out of 5 stars Packed With Knowledge! August 31, 2001
Mark L. Sirower's thought-provoking and complex book is actually a critically acclaimed academic study that challenges the reasoning behind corporate acquisitions. Pointing out that acquisitions usually devalue the acquiring companies (a loss from which they rarely recover), Sirower delves into management fundamentals and mathematical analyses to get to the bottom of merger and acquisition problems. Three detailed appendices feature plenty of financial calculations, performance measures and data from various corporate acquisitions to back up his assertions. We [...] recommend this book to those involved in mergers and acquisitions and to other readers intrigued by the inside view of this "carnivorous quest."
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1 of 1 people found the following review helpful
5.0 out of 5 stars A must read for valuation analysts September 25, 2003
Excellent scholarly work. Control premiums are assumed and not supported by empirical evidence. The Synergy Trap is packed with statistical evidence to support the enfluence of the auction or "bidding" process that heavily enfluences stock prices during acquisitions and takeovers.
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