Quantifying operational synergies in a merger/acquisition

Diwakar Gupta, Yigal Gerchak

Research output: Contribution to journalArticlepeer-review

55 Scopus citations

Abstract

Merger and acquisition activity has increased sharply in the last decade. It seems useful to have models that can help senior managers of bidder firms make informed decisions about the amount of premium, over the target's share prices prevailing prior to merger announcement, that can be justified on the basis of operational synergies. The goal of this article is to capture important parameters from the production side that have a bearing on the Valuation of the target's shares. We show that the production characteristics of both the bidder and the target matter in a significant way. For example, if the bidder and target operate in independent markets, the bidder has flexible production facilities but the target's production facilities are inflexible, then an increase in the bidder's demand can make the target less attractive and lower the value of operational synergy.

Original languageEnglish (US)
Pages (from-to)517-533
Number of pages17
JournalManagement Science
Volume48
Issue number4
DOIs
StatePublished - Apr 2002

Keywords

  • Capacity Management
  • Mergers and Acquisitions
  • Newsvendor Problem
  • Production and Finance

Fingerprint Dive into the research topics of 'Quantifying operational synergies in a merger/acquisition'. Together they form a unique fingerprint.

Cite this