The acquisition of young technology-based firms: a study of the three parties involved

Over the past decades an increasing number of companies has used technology acquisitions to gain access to new technologies and technical capabilities. Technology acquisitions are defined as the acquisition of young technology-based firms made by large established firms to graft the acquired technological capabilities onto their own resource bases (Puranam et al., 2006). The advantages of taking over such young technology-based firms are clear from the perspective of the acquirer. First, they provide fast access to valuable assets such as technologies and innovative capabilities (Ahuja & Katila, 2001; Ranft & Lord, 2002). Second, young technology-based firms have organizational advantages in terms of innovation and exploration, which explains their attractiveness for incumbents (Brown & Eisenhardt, 1997). Moreover, technology acquisitions offer fast access to new markets, while internal development is a more risky strategy to enter new markets. Technology acquisitions are not only an important strategic objective from the perspective of the acquirer, also for the young technology-based firm it might be interesting to pursue an acquisition strategy as it offers them access to the complementary assets necessary to bring their products to the market (Gans & Stern, 2003). Besides, technology acquisitions constitute an essential exit route for the venture capitalist investing in the firm. Nowadays, the majority of the financial returns realized by venture capitalists are generated by acquisitions (i.e. the so-called trade sales). The objective of this doctoral study is to investigate how the three parties mentioned above can contribute to the success of the acquisition, taking in account that the definition of success might differ depending on the party under study. While the acquirer is primarily interested in performance after acquisition, the young technology-based firm and the venture capitalist are rather interested the acquisition as such and the return generated by this event. This dissertation consists of three studies, each zooming in on one of those parties involved. The first paper of this dissertation studies the acquisition from the perspective of the acquirer. More specifically, it investigates how certain strategic decision taken by the acquirer influence acquisition performance. Using a case study design, this study unravels how the strategic decisions and actions undertaken by the acquirer in the pre- and postacquisition stage are interrelated and how they affect acquisition performance. The empirical findings clearly demonstrate how preacquisition and postacquisition are closely correlated and influence one another. The interviews further revealed that both search and selection are crucial in preparing the implementation of the acquisition, as they moderate some of the typical selection problems (such as information asymmetry) and implementation problems (such as resistance of the personnel). With respect to search, our findings confirm that it is crucial to develop effective search strategies which allow the acquirer to identify interesting acquisition target. The search for suitable acquisition targets usually occurs by means of engaging in collaboration agreements, corporate venture capital, licensing agreements etc. They allow the acquirer to gain in-depth knowledge about the potential acquisition target before the actual acquisition. This knowledge helps the acquirer to better manage both the selection stage and the postacquisition implementation stage. Regarding selection, we explored how decisions taken during the selection and due diligence process influence the subsequent stages of the acquisition. The empirical data indicate that involvement of the client department is a crucial success factor in the acquisition process for the following reasons. First, the client department is best suited to check a number of assumptions with respect to the expected synergies. Second, the involvement of client department during the pre-acquisition stages also secures buy-in and commitment from this department to acquisition, thereby reducing the resistance of the employees to the acquisition and facilitating implementation. Finally, we discovered that the interrelatedness of these process components has implications for the team that is managing the acquisition. In particular, the interviews revealed that acquisitions might benefit from project management, where one dedicated team is responsible for the management of the file. In a second paper, attention shifted from the acquirer to the young technology-based firm. This study aims to investigate how the strategic actions of the young technology-based firm contribute to the chance of being acquired and the acquisition return. Building on resource-based theory, a number of hypotheses were developed to predict the impact of technical, human and social resources on acquisition likelihood on the one hand and the impact of revenue generating capabilities on acquisition return on the other. Based upon an analysis of 285 young technology-based firms, it appears that hiring managers with experience in the sector and patenting both have a positive influence on the likelihood of being acquired. Regarding acquisition return, both revenues and commercial and research partnerships have a positive impact on acquisition return. Conversely, hiring experienced top manager and patents seem to negatively affect acquisition return. The third study finally, intends to examine to what extend the experience of the venture capital firm investing in the young technology-based company influences the likelihood of realizing an acquisition. For the development of the hypotheses, organizational learning theory was used. This theory distinguishes between three types of learning: learning from own experiences, learning from the experiences of others and congenital experience (i.e. experience which already accrued in the industry before foundation of an organization). The analysis of 206 British young technology-based firms reveals that both experiential learning from own trade sale experience and vicarious learning from the trade sale experiences of the syndicate partners have a significant positive impact on the likelihood of realizing a trade sale. Congenital experience on the other hand has no significant impact. These three studies make a number of significant contributions to the literature. The first paper primarily contributes to the literature on technology acquisitions. This papers is one of the first to investigate how the preacquisition stage and postacquisition are related to one another. Further, this paper illustrates the importance of proper knowledge management, not only between target and acquirer but also between the various teams within the acquirer. The second and third paper primarily contribute to the exit literature by explicitly considering trade sales an exit option. Furthermore, the second paper also adds to the entrepreneurship literature on commercialization strategy by focusing on acquisitions as a route to market. In addition to the literature contributions, this doctoral thesis also provides some interesting insights for acquirers, young technology-based firms and venture capitalists looking to realize a successful acquisition

Technology Acquisitions: A Process Perspective on Search, Selection and Implementation

Technology acquisitions have become an important external source of innovation. But notwithstanding the abundant literature on the topic, relatively little is known about the acquisition process itself and how it impacts acquisition performance. Some papers have used a process perspective as point of departure, but these studies focus at one component of the acquisition process and neglect to question how these different process components interact to influence acquisition performance. To address this gap, we carefully scrutinize each process component for its influence on the subsequent acquisition stages and performance. Using a case study design, we find that the decisions and managerial actions taken in the search and selection phase have an important impact on the success of implementation. We identify search and involvement of the client department as crucial mechanisms in the acquisition process and reveal their implications for the structure and composition of the team managing the acquisition

Technology acquisitions: a process perspective on search, selection and implementation

Technology acquisitions have become an important external source of innovation. But notwithstanding the abundant literature on the topic, relatively little is known about the acquisition process itself and how it impacts acquisition performance. Some papers have used a process perspective as point of departure, but these studies focus at one component of the acquisition process and neglect to question how these different process components interact to influence acquisition performance. To address this gap, we carefully scrutinize each process component for its influence on the subsequent acquisition stages and performance. Using a case study design, we find that the decisions and managerial actions taken in the search and selection phase have an important impact on the success of implementation. We identify search and involvement of the client department as crucial mechanisms in the acquisition process and reveal their implications for the structure and composition of the team managing the acquisition

Making the Lean Start-Up Method Work: The Role of Prior Market Knowledge

International audienceMost growth‐oriented ventures make extensive use of venture experimentation, popularized by the lean start‐up method (LSM), yet we know very little about the boundary conditions under which this method can be successful. Using a longitudinal, multiple‐case study method, we investigate how growth‐oriented ventures can apply the LSM to achieve early venture success, and find that prior market knowledge is an important boundary condition for its successful application. We also contribute to the absorptive capacity literature by clarifying how new ventures build absorptive capacity early in their venture lifetimes

Entrepreneurial exit by acquisition: the impact of heterogeneity in products and technology portfolio and marketing capabilities

Purpose This paper aims to study the effect of two important marketing decisions on the extent of value capturing by the firm owners. First, it addresses the debate whether acquirers of young technology-based firms value targets that span multiple technology and market categories indicating multiples options for growth or prefer more narrowly defined targets with a clear product and market focus. Second, it investigates to what extent the use of alliances for marketing purposes contributes to value capturing and how they moderate the effect of diversification of technology and marketing. Design/methodology/approach To estimate the acquisition price, a linear regression model is used, including a Heckman correction controlling for the likelihood of being acquired. The hypotheses are tested in a sample of British venture capital backed firms. Findings Firms that convey focus in their marketing activities (either because they focus on a few market categories or because they rely on downstream alliance to market their inventions) receive higher valuations at acquisition than those that diversify. Further, also the size of the product portfolio is negatively correlated to the acquisition price. Finally, the results reveal that firms with a broad patent portfolio can reduce the negative effects on firm value by engaging in less downstream alliances. Originality/value This paper advances existing research on exit strategies for entrepreneurial firms by considering factors explaining acquisition prices, instead of acquisition probabilities. Further, it adds the categorization research by demonstrating how acquirers respond to complex combinations of technology and market categories