The Role of Technological Synergy in Mergers and Acquisitions

38 Pages Posted: 20 Mar 2012

See all articles by James S. Ang

James S. Ang

Florida State University; Florida State University - College of Law

Chaopeng Wu

Xiamen University - School of Management

Date Written: October 25, 2011

Abstract

While there is a large finance literature on the importance of synergy in mergers,there have been relatively few empirical studies that identify the specific sources of synergy and estimate their magnitudes. In this study, we concentrate on the value of synergy from combining two companies with complementary technologies. We identify several dimensions of technological synergy between acquirers and targets constructed from their patent portfolios data. Based on 2,626 horizontal acquisitions from 1977 to 2004, we find technological synergy is a positive determinant of merger premium. It also has a positive effect on the expected total synergy gain to the acquirers and target shareholders. The effect of technological synergy on total synergy gain is stronger if the acquirer and target are in less-competitive industries and if the target is under financial constraint. We verify our measures of technological synergy could capture acquirer’s expected technological synergy, i.e., increase in subsequent R&D investment, and realized technological synergy in increase in the number of patents in the post acquisition period.

Keywords: Technological Synergy, Mergers and Acquisitions

JEL Classification: G24

Suggested Citation

Ang, James S. and Wu, Chaopeng, The Role of Technological Synergy in Mergers and Acquisitions (October 25, 2011). Available at SSRN: https://ssrn.com/abstract=2024805 or http://dx.doi.org/10.2139/ssrn.2024805

James S. Ang

Florida State University ( email )

College of Business
Tallahassee, FL 32306-1042
United States
904-644-8208 (Phone)

Florida State University - College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States

Chaopeng Wu (Contact Author)

Xiamen University - School of Management ( email )

No.422 Siming Nan Road
Xiamen, Fujian 361005
China

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