In a study published in the prestigious Journal of Management (Zorn, Sexton, Bhussar, & Lamont, 2017), we shed light on a common but often overlooked type of acquisition that can significantly impact performance: Nested Acquisitions. 

Here's what executives and managers need to know:

What are nested acquisitions? Nested acquisitions occur when a company acquires a target firm that has recently made its own acquisitions. For example, if Company A buys Company B, which had recently acquired Companies C and D, this would be a nested acquisition.

Key findings:

1. Nested acquisitions are more common than you might think, accounting for about 25% of publicly traded U.S. acquisitions.
2. Nested acquisitions tend to result in lower post-acquisition performance compared to non-nested acquisitions.
3. The more complex the nested acquisition (e.g., more numerous, recent, or unrelated nested targets), the worse the performance tends to be.
4. Retaining top management team members from the acquired company can help mitigate some of the negative performance effects, especially when the nested targets are numerous or recent.

Why it matters: Nested acquisitions present unique integration challenges that can strain managerial capacity in both the acquiring and acquired firms. 

These challenges include:

• Dealing with multiple ongoing integration processes
• Managing resource recombination across multiple entities
• Preventing knowledge losses
• Navigating cultural differences across multiple organizations

What you can do:

1. During due diligence, thoroughly investigate your target's recent acquisition history.
2. Assess the complexity of any nested acquisitions and factor this into your integration planning and timelines.
3. Consider retaining key managers from the acquired firm to help navigate the complexities of nested integration.
4. Be prepared to invest additional time and resources into managing nested acquisitions.

The bottom line: 

While nested acquisitions are increasingly common, they come with hidden challenges that can significantly impact performance. By being aware of these challenges and taking proactive steps to address them, executives can improve their chances of success in these complex transactions.

Reference: Zorn, M. L., Sexton, J. C., Bhussar, M. S., & Lamont, B. T. (2019). Unfinished business: Nested acquisitions, managerial capacity, and firm performance. Journal of Management, 45(4), 1488-1516.