Mergers and acquisitions (M&As) have grown at an unprecedented rate throughout the globe. This is unsurprising given today’s challenges.
Avago’s $37 billion acquisition of Broadcom in 2018 is one recent high-profile technology M&A. In 2015, NXP paid $11.8 billion for Freescale, while Adobe paid $4.75 billion for marketing automation software startup Marketo in October 2018. As a result, obtaining and developing new technologies in M&As has been a critical problem fraught with uncertainty and risk.
Telefonica will earn $8.137 billion in 2021, a fivefold increase over the previous year.
Recently, scholars from the University of Aberdeen’s Business School and the University of Macau undertook research that offers an unusual viewpoint. This happened, in part, because of ongoing interest in customer engagement.
Data from 1,298 mergers and acquisitions completed by American companies from 2014 to 2019 show results. That is to say, high levels of technological similarity increase the relevance of the acquired firm’s technology. Consequently, this positive impact diminishes as the technical similarity of the two parties increases beyond a given threshold.
More crucially, the power imbalance of acquisitions dampens the irrefutable curvilinear association between technical similarity and post-acquisition innovation.
Many technical M&As have shown the double-edged impact of technological similarity on post-acquisition innovation performance. The negative regulation by a power imbalance but favorably moderated by mutual dependency. Consider IBM’s $34 billion acquisition of Red Hat or Microsoft’s $26.2 billion acquisition of LinkedIn.
The moderating impact of power imbalance tends to fade with time while mutual dependency continues, as illustrated by Oracle’s $7.4 billion acquisition of Sun Microsystems.
Following the purchase, Oracle was under considerable pressure to eradicate organizational culture incentive mechanisms discrepancies. Communication routines and assessment systems between the two giant companies.
Be aware of the importance of inter-firm acquisitions.
Leaders must pay attention to the crucial role of inter-firm connections. Particularly the distinction between power imbalance and mutual dependency. These two elements have a significant impact on M&A success and post-acquisition innovation performance.
Take into account mutual reliance when it comes to acquisitions. The second key message suggests that leaders pay special attention to the negative consequences of various interdependent relationship structures.
Mutual reliance functions in the same way as two sides of a magnet do. First, it improves the quality and number of acquisition contacts, making mutual trust — cooperative activities and frequent agreement exchanges — easier. As a result, these executives should focus on increasing their mutual reliance, which will lead to a successful technical M&A.
Keep an eye out for power mismatches.
Finally, leaders should be wary of the adverse effects of power imbalance. The imbalance may lead to asocial motivations and selfish behavior, consequently weakening the influence of technical similarity on post-acquisition innovation.
As a result, CEOs must work to decrease power imbalances between the two parties involved while also strengthening the relationship’s common foundation by frequently returning to their shared interests, objectives, and norms. That is to say, it cultivates “performance attainment.”
According to David Cobb, a renowned author and leadership professor for the Financial Times, doing so allows for more collaborative functioning both inside and across teams. As a result, we end up with “a more globalized globe” and “red markets,” as described by Blue Ocean Strategy.
Predictably, mergers and acquisitions remain a viable choice for corporate expansion and internationalization. Moreover, who can dispute their importance if they help firms move toward being customer-centric and agile organizations?
Are they made up of a network of small teams that are interconnected and linked and who are persistently chasing enhanced customer value? They do this through quick development cycles that are devoid of hierarchy or bureaucracy and under the supervision of management.
Do managers encourage a service culture by recognizing collective performance and fostering collaboration among their employees?
Prepare for your future as an acquisition leader.
Leadership is indeed a community asset, so get involved.
It’s shocking and quite troubling how few leaders really accomplish what they claim they would do. It is vital that you invest time in developing your personal network of people from whom you may get the support and encouragement you need to lead in difficult times. This is especially so during mergers and acquisitions.
That final one is particularly difficult to do right now. Nonetheless, the significance of a leadership community cannot be overstated: organizations must find a method to foster a strong feeling of belonging among their top executives.
The practice of leadership has always seemed isolating, but in today’s world of hybrid work, an increasing number of leaders are feeling alone and separated from one another. This is a time in which a return to some acquisition fundamentals is required.
