Generally its because people who run/operate companies are terrible at allocating capital. Operating a business and effectively allocating capital are two very

Generally its because people who run/operate companies are terrible at allocating capital. Operating a business and effectively allocating capital are two very different skills, but smart operators seem to believe their intelligence carries over to capital allocation. The fact is that most companies destroy shareholder value when they buy other companies. A recent example is the whole yahoo/delicious debacle but anyone reading this can think of a handful of other equally terrible examples off the top of their head. A far more difficult exercise would be to name the acquisitions that actually added long-term value. For example, Apple is generally great at only buying companies that add real value. They are an exception. The fact that operators are terrible at capital allocation is great for founders and VCs. Its terrible for shareholders of the acquiring company!