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The Leon Recanati Graduate School of Business Administration, Faculty of Management, Tel-Aviv University, Ramat Aviv, Tel Aviv 69978, Israel
Tel-Aviv University and Kings College London; Faculty of Management, Tel-Aviv University, Ramat Aviv, Tel Aviv 69978, Israel
A R T I C L E I N F O
A B S T R A C T
Article history:
Received 6 December 2013
Received in revised form 9 April 2014
Accepted 10 June 2014
Available online 12 July 2014
This study examines the effects of timing in high-tech acquisitions by analyzing how deviation from
routines affects the value captured by the acquirer as well as the price paid. It examines the context of
information and communication technology (ICT) acquisitions in which multinational technology
incumbents are known to habitually acquire product-related capabilities to facilitate their entry into
new product domains. The paper highlights the role of routines in managing technology acquisitions of
multinationals, and tests the hypothesis that smaller deviations in terms of target-maturity and
acquisition-timing lead to superior outcomes for acquirers. The ndings indicate positive relationships
between stricter iterations of routines and superior outcomes. The discussion centers on the theoretical
implications of acquisition routines, timing and performance of multinational technology companies.
2014 Elsevier Ltd. All rights reserved.
Keywords:
Acquisition routines
Multinational companies
Organizational routines
Price
Target maturity
Timing and performance
1. Introduction
Multinational companies in high-technology settings often
pursue acquisition programs in which they acquire many rms as
a substitute for internal R&D to quickly build and improve their
multiple market point positions in response to abbreviated
product life cycles (Bower, 2001). However, integration efforts
often fail because rms do not develop a complete logic as regards
the reasons for acquisition, the locus of the value, and the
resources (time, effort) that need to be channeled to successfully
integrate a target rm (Christensen, Alton, Rising, & Waldeck,
2011). We suggest that success or failure of post-merger
integration efforts depends on the timing of such acquisitions;
namely, the level of maturity of the target rm, as well as the
frequency of acquisitions made by the acquirer (Shi, Sun, &
Financial support from the Samuel Neaman Institute for Advanced Studies in
Science and Technology at the Technion, the Henry Crown Institute of Business
Research in Israel and the Hurvitz Institute of Strategic Management at the Faculty
of Management, Tel Aviv University is gratefully acknowledged. We wish to thank
the editor and two anonymous reviewers of this journal for their constructive
feedback. We also appreciate comments from Jay Bourgeois, John Haleblian, and
seminar participants at INSEAD, University of Virginia, IE Madrid, Tel Aviv
University, the IDC and the Technion on earlier drafts of this paper. All remaining
errors or omissions are our own.
* Corresponding author. Tel.: +972 4 8252664; fax: +972 3 640 9983.
E-mail addresses: nirb@post.tau.ac.il (N.N. Brueller), sellis@post.tau.ac.il
(S. Ellis), segeva@post.tau.ac.il (E. Segev), avic@post.tau.ac.il (A. Carmeli).
http://dx.doi.org/10.1016/j.ibusrev.2014.06.006
0969-5931/ 2014 Elsevier Ltd. All rights reserved.
1
Although the type and degree of post-merger integration may take very different
forms, for example ranging from preservation to complete absorption (Haspeslagh
& Jemison, 1991; Puranam, Singh, & Chaudhuri, 2009), the term in its general form
applies to all related-acquisitions with which this study is concerned.
rms may benet from process learning (Keil, 2004) which allows
them to improve their performance on subsequent acquisitions
(Finkelstein & Haleblian, 2002; Haleblian & Finkelstein, 1999;
Hayward, 2002). Learning from past acquisitions (i.e., experience)
where underlying organizational policies and practices are
questioned (Argyris, 1977; Argyris & Schoen, 1978) leads to
modications in organizational routines. In the short-term,
however, the benets of a tight performance regime are expected
to outweigh the long-term potential risks of inertia. Conversely,
deviating from the routines blueprint, or typical execution, is
expected to negatively impact short-term performance. In
conceptualizing the difference between short- and long-term
horizons it is useful to consider Lewins (1947) view of change
and constancy as relative concepts. Thus, any theorizing is
contingent on the characteristics of the chosen time horizon.
Winter and Szulanskis (2001) theory of growth by replication started an adjacent research stream in the theory of
organizational evolution. They described a strategy of growth by
replication as a two-phase process. During the rst phase, rms
use exploration to identify their replication logic and approximate their Arrow Core, whereas during the second phase they
exploit it by engaging replication. Although replication is not
expected to produce only perfectly accurate replicas due to
changing conditions requiring adaptation, Winter and Szulanski
(2001) suggested that freezing the replication logic leads to
superior organizational outcomes as compared to continuous
exploration. The replication dilemma entails a trade-off between
precision and learning and adaptation (March, 1991).
In what follows, we theorize why organizational characteristics
of target rms and acquisition timing can help explicate selection
and integration challenges, and assess the performative aspect of
acquisition as an iteration of the acquisition routine (Ellis et al.,
2011; Hayward, 2002; Laamanen & Keil, 2008).
2.3. Target related timing: maturity of target rms
Frequent acquirers generate value by cultivating their ability to
ll gaps in their product or technology capabilities. One challenge
faced by frequent acquirers is integration, as this is a key
mechanism to achieve value. The long-term success of these
acquisitions derives from the ability to link technological
capabilities to human system skills (Bower, 2001; Chaudhuri &
Tabrizi, 1999; Puranam et al., 2006; Ranft & Lord, 2000). The
successful integration of a target rm depends on rm size; the
larger the acquired rm, the higher the integration complexity. In
addition, accumulated experience in acquisitions of similar size is
expected to enhance the acquirers performance (Finkelstein &
Haleblian, 2002). In high technology acquisitions the major asset
acquired is human capital (Bower, 2001; Chaudhuri & Tabrizi,
1999). However, the combination of a target rms age and size
provides a more complete characterization of its level of maturity
in technology grafting acquisitions (Chaudhuri et al., 2005;
Puranam, 2001). Acquisition targets also differ in the type of
value they bring to the acquirer (Puranam & Srikanth, 2007); i.e.,
what the acquired rm knows vs. what the acquired rm does. This
tends to be related to the targets size: younger targets, often
referred to as technology and talent acquisitions, tend to be
acquired for what they know, whereas more established targets
in product or even platform acquisitions tend to be acquired for
what they do (Brueller, Carmeli, & Drori, 2014).
Whereas more mature target rms represent an integration
challenge, acquiring less mature rms may increase the risk that
their technology will not come to fruition as planned (Mayer &
Kenney, 2004). Therefore, an acquirers deviation from its specic
Arrow Core (Winter & Szulanski, 2001) in terms of target maturity
is expected to create new difculties and thereby may negatively
3. Method
3.1. Sample
In this study, we focused on acquisitions of multinational
companies in information and communications technology (ICT)
industries. This is because extending the product offering
through acquisitions is particularly attractive for rms in these
industries due to the modular nature of IT design, as compared to
the organic nature of pharmaceutical products, for example
(Bower, 2001). In addition, we examined a sample of acquisitions
in publicly traded international technology incumbents for
which secondary data are available. The sample was extracted
from the SDC Platinums M&A database and consisted of rms
acquiring at least ten target rms in the period between 1996
and 1999; the sample did not include an acquiring rm that had
been acquired by another rm. The initial list included 437
international acquisition transactions carried out by 23 acquirers.
Given the importance of the number of employees as a proxy
for rm size, only cases in which this gure was disclosed were
considered, resulting in 159 remaining acquisitions. Finally, listwise deletion of other missing values resulted in the elimination
of additional 58 additional cases. Data analysis was conducted
on the nal sample which included 101 acquisitions made by 20
international acquiring companies (see Appendix A).
The choice of time period of the sample was consistent with
previous studies on technology acquisitions that have focused on
the second half of the 1990s (King & Driessnack, 2003; Laamanen &
Keil, 2008; Ransbotham & Mitra, 2010), which was a growth period
in the economy. This ensured that all measurements were limited
to a period of more favorable economic conditions (Ramanujam &
Varadarajan, 1989).
3.2. Measures
3.2.1. Independent variables
Deviation from typical target maturity. We assessed deviation
from typical target maturity using deviation of target age and
deviation of target size. Deviation of Target Age: This measure was
assessed by the normalized deviation of target age (a target rm
age is measured in years by subtracting the effective acquisition
Table 1
Descriptive statistics and matrix of correlations, Model 1.
Mean
S.D.
11.65
759.97
.74
.70
12.10
10.70
1.84
16.72
2622.07
.78
.62
6.32
8.37
2.87
.09
.25*
.55**
.28*
.13
.20*
.40**
.06
.09
.13
.10
.11
.08
.12
.05
.10
.13
.05
.52**
.17
.05
N = 101.
*
P < .05.
**
P < .01.
Table 2
Descriptive statistics and matrix of correlations, Model 2.
Mean
S.D.
7.94
.97
1998.02
631.57
1.84
5.43
.58
1.13
2352.80
2.87
.47**
.48**
.08
.34**
.49**
.17
.18*
.48**
.08
.16
N = 101.
*
P < .05.
**
P < .01.
3.838
1.503
Size
Deviation from
Typical Target
Maturity
.080*
Dev
Size
-.051*
Acquirer's Value
Capture
.568*
.059*
.139
2nd yr
ROA
-.071
Abnormal
Return
.087
Price
.468
Price per
Employee
* p < .05
fixed to 1
Dev Age
ROA
1.087
Deviation from
Typical
Acquisition Rate
.434*
.669*
Target's Value
Capture
* p < .05
fixed to 1
.437
Table 3
SEM t-of-indices for Models 1, 2 and 3.
Model
Chi-square
df
Chi-square/df
CFI
IFI
NFI
RFI
#1
#2
13.61
2.52
12
3
1.134
0.839
.99
1.00
.99
1.00
.98
1.00
.94
.99
Note. CFI = Comparative Fit Index, IFI = Incremental Fit Index, NFI = Normed Fit Index,
RFI = Relative Fit Index.
Table 4
Multiple regression results for the effect of control variables on ROA, 2nd year ROA, abnormal return, price, and price per employee.
Constanta
R&D intensity
Relative size
Target (1 = public; 0 = private)
R2
Adjusted R2
F for R2
Std. error of the estimate
a
*
**
Model 1 b (t)
Model 2 b (t)
Model 3 b (t)
Model 4 b (t)
Model 4 b (t)
ROA
Abnormal return
Price
.12 (4.55**)
.02 ( .22)
.05 ( .50)
.09 ( .89)
.014
.00
.455
.086
.12 (6.27**)
.01 (.06)
.16 (1.53)
.07 ( .65)
.025
.00
.818
.063
11.67 ( 2.13)
.38 ( 4.06**)
.08 (.810**)
.01 ( .11)
.153
.126
5.764**
18.011
.297 (.42)
.08 (.82)
.26 (2.61**)
.068
.049
3.56*
2316.36
.25 (30)
.22 (2.30**)
.30 (3.69**)
.18 ( 1.83)
.15
.124
5.67**
2.71
Unstandardized coefcients.
p < .05.
p < .01.
Name
1999 total
assets [bln]
1999
sales
[bln]
1999 net
prot
[bln]
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
3Com Corp
ADC Telecommunications Inc.
Black Box Corp
Cabletron Systems Inc.
Cadence Design Systems Inc.
Cisco Systems Inc.
CompuWare Corp
Computer Associates Intl Inc.
Cooper Industries Inc.
General Electric Co{GE}
Hewlett-Packard Co
IBM Corp
Intel Corp
Lucent Technologies Inc.
Microsoft Corp
Motorola Inc.
Oracle Corp
Sun Microsystems Inc.
Texas Instruments Inc.
Thomas & Betts Corp
4.495
1.672
.246
*1.606
1.459
14.725
1.459
8.070
4.143
405.200
35.297
87.495
43.849
38.775
37.156
37.327
7.259
8.420
15.427
2.652
5.572
1.926
.329
1.377*
1.093
12.154
1.676
5.253
3.868
111.630
36.178
87.548
29.389
38.303
19.747
30.931
8.827
10.091
9.759
2.522
.403
.205
.038
-.127*
-.014
2.096
.349
.626
.331
10.717
3.491
7.712
7.314
4.766
7.785
.817
1.289
1.031
1.451
.148
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