Allying before acquiring can improve the performance of high-tech acquisitions

What is it about?

This paper shows two important results for high-tech acquisitions. First, that having an alliance with the target firm before the acquisition does not always make for a better acquisition. Second, that the pre-acquisition alliance can be beneficial under two circumstances: (a) if a firm is acquiring an international target and (b) if the pre-acquisition alliance is "strong", meaning that it requires intense interaction between the two firms before the acquisition.

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Why is it important?

The findings are important because pulling off high-tech acquisitions is really hard. The knowledge assets involved in these acquisitions (intellectual property, highly-skilled personnel, complex machinery) are hard to value before the deal is completed and hard to integrate afterwards. A pre-acquisition alliance between the two firms can help smooth both the pre- and post-acquisition phases of making the deal work. But it's not a magic bullet. It works best when acquiring a foreign partner because it helps the acquirer overcome the cultural and institutional challenges common in international deals. And it works best when the two firms have a real two-way interaction during the alliance. In contrast, a weak, arms-length alliance doesn't allow the acquirer to learn enough about and develop sufficient trust with the target. This gives managers clear guidance about when it pays to ally before acquiring.

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