Abstract
Previous theoretical research has argued that due diligence in the pre-acquisition phase is traditionally oriented towards legal and financial matters. However, in the innovation-driven market environment, where firms need to maintain competitive strength, business skills and knowledge play important roles. Despite this difference, the due diligence research continues in traditional areas, e.g., financial history, legal and commercial liabilities, and tax issues. Hence, the problem may arise in acquirers overpaying or mistakenly rejecting a target firm. There is a need for assessing ‘Business Capabilities and Human Resources Knowledge’ for due diligence in the pre-acquisition phase. Based on a fundamental review of critical factors in mergers and acquisitions, this study seeks to examine the inclusion of this factor in due diligence during pre-acquisition. The research method includes a cross-sectional survey among firms with cross-border acquisition experience. The results of the empirical research provide reasonable support towards the organizational learning theory, suggesting that the more the acquirer learns about the critical factor, “Business Capabilities and Human Resources Knowledge”, the better the acquisition success. These results highlight the importance of expanding the traditional due diligence view by including this critical factor as the integral part of the pre-acquisition investigation.
Highlights
The waves of mergers and acquisitions has increased since the late 1990s and early 2000s, especially in terms of cross-border acquisitions
Cross-border acquisitions concentrate on sectors with intensified global competition and market pressures of falling commodity prices, excess capacity, and rapid technological change
The correlation between the independent variables and the acquisition success was strong for technological competence and the business capabilities, indicating that changes in these variables were strongly correlated with changes in the acquisition success
Summary
The waves of mergers and acquisitions has increased since the late 1990s and early 2000s, especially in terms of cross-border acquisitions. Cross-border acquisitions concentrate on sectors with intensified global competition and market pressures of falling commodity prices, excess capacity, and rapid technological change. Competitive advantage arises from the existence of firmspecific intangible assets (e.g., production knowledge, employee skills, and management competence). This has been enhanced by the rapid technological advances and growing knowledge intensification in the industries. Past research has focused more on integration during the post-acquisition phase for the factors for crucial success (Hitt et al, 2009). This research aims to describe an issue that, until now, has received little attention in the literature, namely, the effects of ‘Business Capabilities and Human Resources Knowledge’ in cross-border acquisitions
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