A Balance Model for Evaluating Firms for Acquisition

In recent years, the U.S. corporate world has been dominated by a spectacular spate of mergers and acquisitions. Firms are seeking out partners that will provide them the necessary leverage to achieve their various growth and diversification goals. Based on the balance model developed by Farquhar and Rao, this paper suggests a multi-attribute approach for evaluating acquisition partners. The appropriateness of this approach in the decision of one firm to acquire another firm is investigated using experimental methods. The context of the cosmetic industry is used in this empirical application. Results indicate that the balance model is quite suitable in describing the acquisition decision.