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Cambridge Journal of Economics Advance Access originally published online on February 25, 2009
Cambridge Journal of Economics 2009 33(6):1089-1111; doi:10.1093/cje/bep004
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Right arrow G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
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© The Author 2009. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

The revealed preferences of high technology acquirers: An analysis of the innovation characteristics of their targets

Panos Desyllas and Alan Hughes*

* Manchester Business School, University of Manchester, and Centre for Business Research (CBR) and Judge Business School, University of Cambridge, respectively. The authors gratefully acknowledge financial support from the ESRC/EPSRC, under the AIM initiative, and the CBR core grant. They are grateful to Mari Sako, Dennis Mueller, Jaideep Prabhu, to the anonymous referees of the CBR working paper series and the CJE and to the participants at the Oxford Intellectual Property Research Centre seminar and EURAM 2005 conference for helpful comments

Address for correspondence: Panos Desyllas, Manchester Business School, Booth Street West, Manchester M15 6PB, UK; email: pdesyllas{at}gmail.com

This paper investigates whether acquisitions involving public high technology firms are best understood in terms of acquirers taking over firms with ‘superior’ innovation performance to access their assets, or acquiring firms with ‘inferior’ innovation performance to turn them around. Innovation performance is proxied by R&D-intensity (R&D expenditure over assets), patent-intensity (patents per US$million of assets), i.e. the R&D productivity of a firm's assets, and the patent stock, i.e. the accumulated R&D output. We find substantial overlaps between target and non-acquired firm characteristics. Nevertheless targets have a relatively high R&D-intensity and a large patent stock, which is consistent with acquirers targeting firms with a superior innovation performance. However, these targets have significantly lower pre-acquisition patent-intensity and hence a lower R&D productivity. The targets are also experiencing weak financial performance. Our results are consistent with a selection process in which acquirers seek out firms that have a superior past innovation performance, but that are failing in terms of recent R&D productivity and financial performance. A comparison of the performance of the targets with their acquirers reinforces this conclusion.

Key Words: Mergers and acquisitions • Acquisition likelihood • R&D • Patents

JEL classifications: G34, O31, L20

Manuscript received April 30, 2007; final version received November 18, 2008.


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