Research Note—Parenting New Acquisitions: Acquirers’ Digital Resource Redeployment and Targets’ Performance Improvement in the U.S. Hospital Industry

Abstract

This paper examines how information technology (IT) can contribute to value creation in horizontal acquisitions. We propose that acquisition value can be created when an acquirer redeploys its digital resources to its newly acquired businesses and consequently improves their operations. However, not all acquirers are equally capable of redeploying their digital resources. In this study, we propose two enabling factors pertaining to an acquirer’s IT resource base: IT extensiveness and IT standardization. We argue that the magnitude of digital resource redeployment increases when the acquirer has had extensive use of IT systems within its existing business units and has standardized IT systems across its business units. Moreover, the relative strength of the IT resources of the acquirer, as compared to those of the acquired business, also affects the reuse of the acquirer’s IT resources in its digital resource redeployment activities. We empirically test these hypotheses by tracking the IT and performance changes in 108 U.S. hospitals before and after they were acquired across a seven-year study timeframe.