Toehold Acquisitions as Behavioral Real Options

by Han Smit, Joris Kil



Dealmakers tend to neglect uncertainty when making acquisition decisions, rushing into deals that eventually fail to deliver the anticipated synergies. Cause for this uncertainty neglect can be found in behavioral biases that cloud executive decision making. Acquirers should more often use minority stakes as a toehold to test full acquisitions and to guard themselves against the negative effects of uncertainty. An extended valuation toolkit that requires more managerial attention to uncertainty and behavioral pitfalls can help executives to better identify and value the benefits of minority stake strategies as an alternative to controlling acquisitions in uncertain situations

California Management Review

Berkeley-Haas's Premier Management Journal

Published at Berkeley Haas for more than sixty years, California Management Review seeks to share knowledge that challenges convention and shows a better way of doing business.

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