In 2011, the late Clayton Christensen and his colleagues proposed a theory in the Harvard Business Review to explain this persistent failure. Their argument was that the problem originates not in how acquisitions are integrated, but in a prior strategic error: a failure to correctly identify what is being acquired.
Executives and their M&A advisors confuse two fundamentally different types of deals, one that improves current operations and one that could transform a company's growth trajectory. When you misidentify what you are buying, you pay the wrong price and you integrate the wrong way. Both errors destroy value, but they destroy it in different directions.
The framework Christensen proposed remains one of the most cited in the M&A literature, and, from experience, one of the least applied in practice.
What follows is an examination of the framework itself, the errors it explains, and what it means for business leaders on both sides of a transaction, notably whether the business survives the transaction.
The Framework
Christensen defined a business model as a system of four interdependent elements, which include a customer value proposition, a profit formula, resources, and processes.
The critical distinction lies in the portability of these elements. Only resources, such as a patent portfolio, a distribution network, or a customer base, can be easily extracted from one company and redeployed within another. They exist independently of the organization.
Processes, however, are embedded in the relationships, habits, and institutional memory of the people. They represent the "tacit knowledge" of an organization. Unlike resources, processes rarely survive the dissolution of the organizational context in which they were developed.
From this distinction, Christensen identified two categories of acquisition that require opposite approaches to pricing, integration, and post-close governance.
Leveraging Your Business Model Transactions
In a "leverage my business model" (LBM) deal, the acquirer buys resources to plug into its existing operations. The target’s standalone operating model is dissolved, its resources are absorbed, and value is captured through synergies.
Most acquisitions are LBM deals, and they deliver value only under highly specific conditions.
Cost Synergies only materialize when the acquirer has high fixed costs and the target’s resources are compatible with existing processes. A heating oil retailer buying a competitor on the same route lowers costs; buying one in a distant city merely replicates the cost structure.
The same logic applies to revenue synergies, particularly cross-selling. The strategy only holds if customers need to buy the combined products at the same time and in the same place. Gas stations and convenience stores converge because drivers buy fuel and snacks on the same trip. However, when Sanford Weill assembled Citigroup in the late 1990s by merging Citicorp (banking), Salomon Smith Barney (brokerage), and Travelers (insurance), the premise was that one company could serve all of a customer’s financial needs more efficiently. The strategy failed because each of those needs arises at a different point in a customer's life. The condition for synergy did not hold.
Even when synergies are real, the result is a step change. The company's share price adjusts to a new plateau, then resumes growing at roughly its weighted-average cost of capital. The market typically prices the full potential of an LBM deal within a year, because investors already understand both businesses and can assess the integration outcome. Executives who expect an LBM deal to unlock unexpected, compounding growth are expecting something the deal structurally cannot deliver. This is the mechanism through which LBM deals lead to overpayment. The acquirer pays a price that reflects transformative expectations for a deal that can only produce incremental improvement.
Reinventing Your Business Model Transactions
The second category, "reinvent my business model" (RBM), involves buying a way of operating. This is a specific combination of processes, culture, economics, and customer relationships that functions as a system. The value lies not in any separable component, but in how the components interact.
Where LBM deals dissolve the target, successful RBM deals preserve the target's operating model intact. The acquirer provides capital, strategic support, and access to resources while leaving the core processes and culture undisturbed. In these deals, the pricing error typically runs in the opposite direction. Analysts often value disruptive RBM targets based on the size and margins of their current market segment. They fail to model the company’s ability to move upmarket, segment by segment, into progressively higher-margin products.
Every valuation based on current comparables therefore tends to underestimate the company’s future revenue trajectory because it ignores the markets the company will eventually compete in. Acquirers either negotiate the price down to what the current market supports, paying less than the business is worth, or they walk away from the deal altogether because they are convinced the seller is overreaching.
EMC’s 2004 acquisition of VMware illustrates RBM logic applied correctly. EMC, a storage hardware giant facing commoditization, acquired the privately held server virtualization software company for $635 million in cash. At the time, VMware’s revenues were approximately $218 million. VMware's software was disruptive to server hardware vendors but complementary to EMC's storage business. Had EMC absorbed VMware into its own operations, it would have destroyed the processes and profit formula that constituted the value.
EMC recognized this and operated VMware as a separate subsidiary headquartered in Palo Alto. It was led by its own CEO (Diane Greene) and maintained its own brand, products, and engineering culture. By 2010, annual revenues reached $2.6 billion. When EMC took VMware public in 2007, the IPO valued the company at approximately $19 billion.
The Cost of Misidentification
The Daimler-Chrysler merger of 1998 remains the definitive illustration of what happens when this distinction is ignored. Daimler-Benz acquired Chrysler Corporation for $36 billion. On the surface, the purchase of one car company by another looked like a straightforward resource acquisition.
From about 1988 to 1998, Chrysler had aggressively modularized its products, outsourcing subsystems to tier-one suppliers. This simplified its design processes to the point where Chrysler could cut its design cycle from five years to two (compared with approximately six years at Daimler) and design a car at one-fifth the overhead cost Daimler required. The result was a sequence of popular models and nearly a point of market share gained per year. The value in Chrysler resided in its processes and its profit formula, the way it operated, not in its brands, factories, dealers, or technology.
When Daimler announced the deal, integrations were expected to eliminate $8 billion in redundant costs. What followed was LBM-style absorption. Daimler folded Chrysler's resources (brands, dealers, factories, technology) into its own operations, and in doing so dissolved the processes and profit formula that had been the basis of Chrysler's competitive advantage.
The entire senior leadership team responsible for Chrysler's turnaround departed within three years. By 2001, Chrysler's losses exceeded $1.9 billion at the operating level, and in 2007, Daimler divested.
Daimler applied an LBM integration approach to what was, in substance, an RBM acquisition.
Reflections for Business Leaders
For us at Glenshore, the value of Christensen’s framework is that it provides analytical clarity to a distinction that stakeholders often perceive intuitively but rarely see reflected in the Standard M&A Playbook.
In practice, the boundary between LBM and RBM is never perfectly sharp. Every company has both resources and processes. The question is where the preponderance of value lies.
For many businesses, the competitive advantage is deeply embedded in how the company operates: the culture, the decision-making habits, the relationships with suppliers and customers, the tacit knowledge held by long-tenured employees. These are the business model.
For acquirers, the framework demands a form of honesty that deal momentum often discourages. Before modelling synergies, before negotiating price, the buyer must answer a prior question about whether they are buying resources or a system. If the answer is a system, then the Standard M&A Playbook (consolidate, eliminate redundancy, extract cost savings) will destroy precisely what made the target worth acquiring. The EMC-VMware outcome was the product of a buyer who understood what it had purchased and governed accordingly.
For sellers, the framework reframes the logic of a transaction. The relevant question is no longer only what price can be achieved. It becomes what kind of buyer is sitting across the table. A buyer who recognizes the acquisition as RBM and commits to preserving the operating model is a fundamentally different counterparty from a buyer who intends to absorb, consolidate, and extract synergies. The first will sustain what was built. The second, however well-intentioned, will dismantle it.
Ultimately, an M&A transaction process designed to protect the interests of all parties must generate data not only on what a buyer will pay, but on what they will do. Which functions will be consolidated, which leaders will be retained, and what decision-making authority will remain with the acquired business? These questions determine whether the acquisition captures value and, even, whether the business actually survives the transaction.
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Amine Laouedj Managing Director, Glenshore
I advise responsible business leaders who wish to ensure their company ends up in the right hands and continues to flourish after their exit. If these perspectives resonate with your thoughts, I welcome a conversation. Please connect or message me on LinkedIn.
Glenshore is a boutique investment bank with the Succession M&A Playbook, a disciplined approach to align financial outcomes with long-term mission and legacy preservation. Learn more at glenshore.com.
Disclaimer: The analysis contained herein reflects publicly available information as of the date of publication. All data points are sourced from official filings, academic literature, and verified secondary sources. No proprietary or non-public information has been used.
