Information through Intermediaries: Influence of Venture Capital in M&A

Abstract

This study investigates the influence of indirect relationship between the buyer and seller linked through common (shared) intermediary on the ex-ante acquisition choice and the ex-post acquisition integration outcomes. Prior M&A research has typically focused on the influence of direct ties of entities affiliated either with the buyer or with the seller. In contrast, we build on inter-organizational relationships research to examine how specialized information obtained through an intermediary entity connecting the acquirer-target dyad, influence value creation in acquisition deals. Using acquisition deals of VC-backed technology ventures, we empirically examine the impact of common venture capital affiliations shared between the acquired and acquiring firms on the likelihood of acquisition and post-acquisition management and knowledge integration. We find that acquirer-target dyads with common VC connection are more likely to be selected and more likely to achieve post-acquisition integration and the integration effect is amplified when the common VC is an industry specialist in the acquirer’s focal industry.