Vijf indicatoren voor high-tech M&A flops

Firms in high-tech industries are driven by the creation or acquisition of new knowledge. 

Conceptually, this makes sense. New knowledge contributes both to the firm’s short-term innovative performance (Cloodt et al., 2006), and to its long terms competitive position (Barney, 1986). Empirically, however, many acquisitions are described as failures (Moeller et al., 2004), and technological acquisitions, in particular, are known to be prone to complication and disappointment (Chaudhuri and Tabrizi, 1999; Kapoor and Lim, 2007; Desyllas and Hughes, 2010). Studies looking at the effect of technological acquisitions on the R&D process (Danzon et al., 20007; Hitt et al., 1996), the output, (Prabhu et al., 2005; Cefis et al., 2009) as well as the financial performance of the firm (King et al., 2004; Cosh et al,. 2005, 2008; Cosh and Hughes, 2008) consistently report negative or neutral results for deals whose stated purpose it is to expand the technological standing of the acquiring firm. 

What the research has those far failed to consider, however, is the impact of distance on the performance of a knowledge-based acquisition. An Amsterdam-based acquire, which acquirers a target in Utrecht, can far more easily interact with a target, than it could with a target based in Beijing, not only because of the geographic distance, but because of the institutional, and cultural distance too. Our starting point, therefore, is to suggest that not all acquisitions are equal, and that distance moderates the performance of an acquisition. 

To test this hypothesis, we build a sample of 1820 M&A deals, in high tech industries, in the period 2003 till 2008. We measure performance in terms of changes in the number of patent applications made by the target and acquiring, pre and post acquisition.  We find: 

Looking at the number of patent applications that the target and the acquiring firm made independently, and the number of patent applications that the firms made when they merged, we find that 82% of acquisition failed to generate innovation. In our data, 36% of the firms had a decrease in patents after their merger, 46% of the firms had the same level of patents, and only 18% of the firms had an increase in patents.  Acquiring for innovation, in other words, is a difficult task. 

We measure the distance, in kilometers, between the target and the acquiring firm. Greater distances, we hypotheses, make it more difficult to communicate, and to coordinate, because physical contact and visits are more effective than communication via telephone or e-mail. In a domestic setting, we find evidence to support this suggestion: more distant acquisitions are less likely to innovate. In other words, and all else equal, an Amsterdam acquirer is likely to have better performance from a target in Utrecht, then a target in Maastricht. Interestingly, in the internationally setting, we find no evidence that distance matters. It seems, in other words, that once you go abroad, it doesn’t matter whether your target is in China, or in Germany; other distance measures in these settings play a greater role. 

In an international setting, we find that some aspects of cultural distance matter. Theoretically speaking, cultural distance could enhance organizational learning and creativity, which is beneficial for innovation, but cultural distance could also create a situtaiton of “them and us”, which will hinder the knowledge sharing motivation. We test this proposition using Hofestede’s measures, which suggests that cultures varies in terms of the levels of individualism, masculinity, power-distance, and uncertainty avoidance. We find that differences in masculinity, in particular, has a strongly negative effect on innovation performance. A Dutch acquirer, based in the Netherlands, which has a low level of masculinity, would be better advised to make an acquisitions in a culturally similar country, such as Scandinavia, than a country like Italy, which has a high level of masculinity, if the goal is to improve innovation. 

Some authors argued that institutional distance lead to obstacles in the internationalization process and that it has negative influences on financial performances of alliances, because it hinders the transfer of strategic organizational practice and knowledge. Furthermore, researchers also argued that employees will be less reluctant to implement other practices or to use each other’s knowledge. However, our study didn’t show significant results on the influence of institutional distance on innovation performance. This indicates that institutional distances is not relevant for knowledge sharing and innovation. In other words, Chinese targets shouldn’t be feared because they are based in different institutional setting. 

Finally, one literature suggests that a larger technological gap makes it more difficult to make use of each other’s technologies and knowledge. A contrasting literature suggests that a larger leads to more radical innovations. We test the impact of technological distance on the innovative performance of the deal. We find that innovation performance increases with technological distance but, interestingly, only in the case of a domestic deal. For maximum innovative performance, an Amsterdam acquirer, in other words, should stick within his industry when making an international deal, but can afford to experiment when making a domestic deal. 

Together, this research provides us with some interesting insights not only on the way in which mergers impact innovation, but how distance – variously defined – impacts the levels of innovation that a merger result in. As such, it offers a number of practical, and academic insights, on an interesting topic, with a high level of societal relevance.