Abstract
We investigate why some acquirers value targets’ technological relatedness (i.e. similarity and complementarity) more than others. We propose that the importance of technological relatedness as a target selection criterion is influenced by the extent to which an acquirer Top Management Team is divided into subgroups based on managers’ demographic characteristics (i.e. faultlines). That is because an acquirer Top Management Team’s understanding of technological relatedness depends on the team’s information processing capabilities, driven primarily by Top Management Team faultlines. Our analysis of 94 realized acquisitions among 2082 potential acquisition matches in high-technology industries shows that while both technological similarity and complementarity increase the likelihood of an acquisition match, only the impact of technological complementarity is affected by Top Management Team faultlines. Specifically, we find that Top Management Teams with moderately strong divisions between subgroups pay more attention to technological complementarities between their firm and potential acquisition targets than Top Management Teams with very strong or weak divisions.
Highlights
In high-technology industries, firms increasingly engage in acquisitions to expand their technological capabilities and enhance their innovation performance (Cassiman et al, 2005; Hagedoorn and Wang, 2012; Stiebale, 2013; Villalonga and McGahan, 2005)
This poses the following question: When are some firms better than others at identifying similarities and complementarities in technology acquisitions? To answer this question, we focus on acquirer Top Management Teams (TMTs)—the ultimate decision makers for acquisition target selection (Nadolska and Barkema, 2014; Parola et al, 2015)
Following research that emphasized the pivotal role of TMT composition for important acquisition decisions, such as acquisition frequency (Nadolska and Barkema, 2014), geographic location (Barkema and Shvyrkov, 2007), and integration (Parola et al, 2015), we propose that firms’ target selection decisions are driven by the extent to which acquirer TMTs recognize a potential target’s technological similarity and complementarity
Summary
In high-technology industries, firms increasingly engage in acquisitions to expand their technological capabilities and enhance their innovation performance (Cassiman et al, 2005; Hagedoorn and Wang, 2012; Stiebale, 2013; Villalonga and McGahan, 2005). The findings suggest that acquiring technologically similar targets leads to lower research and development (R&D) expenditures and more incremental innovations, while acquiring targets with complementary (i.e. distinct yet related) technological capabilities leads to improved R&D efficiency, increased innovation quality, and more discontinuous innovations (Cassiman et al, 2005; Makri et al, 2010). The decision to select a target in a technology acquisition depends on the characteristics of the acquiring or target companies—as has been suggested so far (Capron and Shen, 2007; Shen and Reuer, 2005)—and on acquirers’ ability to cope with the information processing demands associated with the assessment of potential targets’ technologies and their fit with the acquirer’s existing technologies
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