Boards: Beware the 'winner's curse'
Many acquisitions fail to create value for the acquirer, and in most deals the benefits go largely to the seller. This reflects the highly competitive nature of the M&A market. It also reflects the large concentrated investment bet at premium prices of M&A transactions. Buyers, in effect, are prepaying for uncertain future revenue and cost synergies. Frequently, buyers overpay for the expected synergies based on managerial optimism, overconfidence, and the urge to beat competing bidders.