Study highlights MA market contributes significantly to the price discovery of technology assets
New study highlights the information-generating power of the mergers and acquisitions (M&A) market, and the essential role cross-firm technology links play in the information transmission process.
The research shows M&A announcements contribute to disseminating novel information about the value of technology that is of common interest among firms with close technologies.
This triggers stock price upward changes for target firms’ technology peers, (those within the same technology space), which may or may not be competitors at product level, share supply chains or be in close physical proximity.
The paper, which has now appeared in Management Science, was co-authored by Dr Xiangshang Cai from the University of Liverpool, Professor Amedeo De Cesari and Professor Ning Gao from the University of Manchester, and Dr Ni Peng from Queen Mary University of London.
Measuring the value of technology
Understanding and measuring the value of technology can be difficult, as technology owners are reluctant to disclose information due to competition pressures.
“Technological innovation forms an essential driver of business success and economic growth, but the value of innovation is often elusive”, said Dr Xiangshang Cai.
“While previous literature has explored economic relations based on product market, supply chain and geographical location, our findings shed light on the relationship between M&A markets and price fluctuations of technologically similar firms.
“Our study shows that technology links and the market for corporate control contribute significantly to the price discovery of technology assets”.
Dr Ni Peng added: “Technology overlap between two firms is a unique economic relation, independent of relations due to product market, supply chain and geographic location.
"Value relevant information can transmit through technology links across firms, providing more precise assessment of technology that is otherwise difficult to obtain.”
Value revisions as a result of new expectations on potential technology synergies
The study demonstrates value revisions for technology peers is a robust economic phenomenon, rather than being driven by merger waves or technology booms.
“Acquisitions elevate the expectation of technology synergies and increase the probability of future deals for technology peers” said Professor Amedeo De Cesari.
“Indeed, technology peers’ abnormal returns are greater when peers are more vulnerable to acquisitions.
“Furthermore, a firm is more likely to be an acquisition target in a year when one or more of its peers received an acquisition bid in the previous year.”
M&A market does not trigger unhealthy changes in industrial competition
The research also found acquisitions built on technology synergies do not shift the competition balance in peers’ product markets.
Customers of acquiring firms do not suffer from negative abnormal returns on average, or in deals most likely to be classified as “killer acquisitions”, which are those with the intention to discontinue the targets’ ongoing R&D projects to pre-empt future competition.
According to the study authors, understanding that acquisitions, together with technology links, play an essential role in the information-transmission process is crucial in terms of firms’ M&A and innovation strategies.
“Firms that aim to undertake acquisitions would find this knowledge particularly important in the target selection and valuation processes”, said Professor Ning Gao.
“It would also inform firms’ anti-merger policies to adapt to the landscape changes brought about by acquisitions of technologically close firms.
“This study also assists government efforts to incentivise innovation activities and facilitate the price discovery of technology assets, especially for small firms.
“It also provides a useful reference for antitrust agencies to calibrate antitrust intervention against acquisitions.”
Read the full paper:Cai, X., De Cesari, A., Gao, N. and Peng, N. (2023). ‘Acquisitions and Technology Value Revision’, Management Science.
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