Acquisition Overload: Capacity Limitations and the Distribution of Acquisitions Across Business Units

Abstract

We investigate how serial acquirers alleviate "indigestion" effects through distributing acquisitions across multiple business units. Consistent with the information processing view of organizations, we argue that both the number and diversity of acquisitions are related to the distribution of acquisitions across multiple business units. In addition, we argue that the distribution of acquisitions across business units has an inverted U-shaped relationship with acquirer performance. Thus, neither the spread of a few acquisitions across multiple units nor the concentration of multiple acquisitions within a few firm units is associated with superior firm performance. Studying a sample of 14,213 acquisitions conducted by the 250 largest public US firms over a 21-year period (1991-2010) provides empirical support for our arguments.