Where Acquisition Capabilities Reside: Corporate Hierarchy, Acquisition Experience, and Performance

Abstract

Whereas most research assumes that acquisition capabilities are a unitary construct at the firm level, we theorize that they are dispersed at the head office (CHQ) and business unit (BU) levels in multi-business acquirers. Leveraging knowledge-based theory, we predict that BUs develop context-specific experience which is separate from CHQ’s more diverse but less specific experience. We expect BU-level experience is more useful, at least for a BU’s subsequent acquisitions, but that corporate level experience complements this. We use hand-collected data on the acquisitions of all business units of a sample of American software firms to test our predictions. We find considerable support for our predictions and discuss implications.