M&As and innovation: Evidence from acquiring private firms

Abstract

We show that acquisitions of private targets increase the quantity, quality, and value of acquirers' patents post acquisition. Private target acquisitions also increase innovation synergies, numbers of new inventors, and patent collaborations while public target acquisitions do not. The positive effects concentrate on acquirers with better expertise in identifying innovative private targets, in breakthrough technology sectors, and do not relate to targets' existing patenting. The differences in innovation outcomes when acquiring private versus public targets explain away the higher announcement returns for private target acquisitions. We conclude that complementary innovative capabilities are important for value creation in private target acquisitions.

Keywords: M&As, private target acquisitions, public target acquisitions, innovation, patent. JEL Classification: G34, O31, O32, O34

JEL Classification: G34, O31, O32, O34