Synergy Illusion in Large-Scale Mergers: Why Strategic M&A Systematically Underperforms Capital Expectations

Author(s)	Alok Kumar Routray
Country	India
Abstract	This study examines whether large-scale strategic mergers create economic value once capital costs are fully accounted for. Using a rigorously constructed archival sample of 32 large-scale strategic mergers undertaken by Indian-listed firms between 2010 and 2023, it investigates the phenomenon of synergy illusion-the systematic overestimation of merger-related benefits relative to realized post-merger capital performance. Post-merger outcomes are evaluated using a return on invested capital (ROIC) relative to weighted average cost of capital (WACC) framework over a three- to five-year horizon. The results show that most strategic mergers fail to earn returns exceeding the cost of capital, with particularly pronounced underperformance in transactions justified primarily by revenue synergies. Governance structure further conditions outcomes, as promoter-controlled firms exhibit significantly weaker capital discipline than professionally managed firms. By reframing M&A underperformance as an ex-ante capital allocation problem rather than a post-merger integration failure, the study reconnects strategic decision-making with economic value creation and advances synergy illusion as a measurable construct in strategy research.
Keywords	M&A, Synegy, Capital Allocation, WACC, ROIC
Field	Business Administration
Published In	Volume 17, Issue 1, January-March 2026
Published On	2026-01-16

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