Advances in Mergers and Acquisitions: Volume 5

Each collection of articles that makes up a volume of Advances in Mergers and Acquisitions paints a picture of contemporary research on this topic, and provides insight to what scholars around the world see as the “hot buttons” worthy of attention. This volume of Advances is no different. We have seven contributions from scholars in North America, Europe, and Asia, and there is considerable diversity among specific research questions to be sure. These papers collectively address acquisition strategy and acquisition integration, successful deals and unsuccessful ones, ownership structure and managerial structure, risk and return, knowledge preservation and knowledge transfer, building trust and cultivating emotions, and alliances and networks. This breadth of attention across the spectrum of research possibilities on mergers and acquisitions (M&A) is remarkable in that it suggests both that this topic has morphed in recent years to encompass a broad array of issues that go far beyond what earlier generations of scholars concerned themselves with, and that there is still so much more to be learned about the processes and performance of M&A.

While the strategic management literature suggests that related diversification is superior to unrelated diversification, there is little evidence that acquirers benefit from pursuing related targets. We argue that the empirical literature is plagued by poor measures of relatedness. Moreover, many empirical studies do not control adequately for the characteristics of the market for corporate control. We argue that not only value creation, but also value appropriation, depend on the relatedness of acquirer and target. Using an improved measure of relatedness, we provide empirical evidence that acquirer returns are positively and significantly correlated with relatedness.

This paper provides a stakeholder-based rationale for firm risk reduction through diversification. While firm-specific investments from stakeholders are often important sources of firm competitive advantage and economic rents, there is a reduced incentive for stakeholders to make these investments due to the risk associated with firm-specific investments. Since the risk associated with firm-specific investments is often related to the total firm risk level, we argue that stakeholders’ difficulties in diversifying the risks associated with their firm-specific investments create incentives for risk management by firms. We test this argument in a diversification setting. Based on a sample of firms’ first acquisition moves, we find that firms are more likely to engage in risk reduction through diversification when high levels of firm-specific assets are important to the firm's operations. Several proxies for stakeholders’ specific investments are found to be significant in explaining cross-sectional variation in the extent of ex ante risk reduction in acquisitions.

A model of knowledge-based resource transfer during acquisition integration is developed and tested in a sample of 75 high-tech acquisitions. Results indicate that transferring tacit knowledge is both desirable and difficult in acquisitions of technology intensive firms. It was found that acquired firm autonomy preserves tacit knowledge, while rich communication and retention of key employees facilitates transferring knowledge in acquisitions.

Prior research on post-acquisition integration has paid little attention to the factors that influence the development of trust between the members of an acquiring firm and those of the target firm. Using a policy capturing approach, we found that five aspects of the takeover situation and the integration process affect target firm members’ trust in the acquiring firm's management: takeover friendliness, national cultural similarity, interaction history of the acquiring firm and the target firm, retained autonomy, and attractiveness of the acquiring firm's HR policies. Our findings suggest that of the five trust antecedents, the attractiveness of the acquirer's HR policies is by far the most powerful predictor of target firm members’ trust in the acquiring firm's management. The implications for post-acquisition integration research and practice are discussed.

The chapter should help managers to realize what they could do in order to enhance positive emotions and well being during challenging times of a post-merger integration.

Indeed, negative affects, such as anxieties, aggressions, uncertainties, and stress are a very common phenomenon in mergers and acquisitions. On the other side, positive emotions are proved to be particularly suited for preventing and dealing with negative emotions.

For researchers this chapter serves as an encouragement to shift their attention to positive emotions, and it aims to instill some ideas for further research.

After three years of decline, the size and number of international acquisitions is picking up again. We show that there is every reason to believe that some of the mistakes of earlier acquisition waves will be made again. This paper presents five lessons from recent research that will help to avoid costly mistakes and instead build a successful multinational corporation. These lessons are illustrated with a case that has attracted much attention recently: the Ahold case.

In recent years, alliances have become even more popular than mergers and acquisitions. Alliance formation has led to the emergence of interconnected firms, which are embedded in alliance networks. This paper offers a theory of network resources to evaluate the competitive advantage of interconnected firms. It distinguishes shared resources from non-shared resources, identifies various types of rent, and illustrates how firm-, relation-, and partner-specific factors determine the contribution of network resources to the rents that interconnected firms extract from their alliance networks. This paper revisits traditional assumptions of the resource-based view and suggests that the nature of relationships may matter more than the nature of resources in creating and sustaining the competitive advantage of interconnected firms.