Last year saw a deluge of mergers and acquisitions across the industry, and while they are a quick way to bolster technology offerings and expand market access, many end as failures, according to researchers.
“Most scholars” agree that about 70 to 80% of acquisitions end up destroying value, said Dr. H. Dennis Park, associate professor of organizations, strategy and international management in the Naveen Jindal School of Management at The University of Texas at Dallas.
To further examine the effects of M&A, Park and his colleagues at UT Dallas recently conducted a study, which was published in the Journal of Management Studies.
“Our main findings were that acquiring firms retaining more target firm scientists were more likely to come up with breakthrough inventions recombining knowledge from both firms,” Park told us.
“However, this is particularly more important when the acquired knowledge is complex, but less important when the acquired knowledge is similar to the existing knowledge of the acquiring firms.”
Prior to initiating the project, Park said the researchers suspected that knowledge characteristics would have ramifications on an acquisitions strategy. “That panned out to be true,” he said.
So how can companies across industries help ensure a successful acquisition?
First, Park said acquiring firms should try to retain scientists from the target firms when their purpose for the acquisition is to be able to come up with subsequent inventions.
“Second, integrating them into the existing firm is always challenging, but it is an essential step to be able to absorb complex knowledge,” he said.
“On the other hand, when the acquired knowledge is similar to the existing knowledge of the acquiring firms, they should be more careful because (a) integration is not as critical and (b) an attempt to integrate them might also lead to side effects like not-invented-here syndrome that could be difficult to manage.”