It is no secret that a substantial percentage of acquisitions will fail to deliver expected synergies. The risk of acquisitions increases if the merging company is comparable in size or if the acquired business is material to the acquiring company. For example, the 2001 merger of Hewlett-Packard Company and Compaq Computer Corporation arguably signaled the end of industry dominance for both companies. Compaq was acquired for $24 billion over the opposition of some shareholders. HP had $45 billion in revenue, while Compaq’s revenue was about $33 billion.
In some extreme cases, failed acquisitions can be detrimental to investors. But what if we could predict which acquisitions will fail?