Innovation and M&A: a study examining innovative capabilities post-acquisition

Abstract

This study examines the impact of Mergers and Acquisitions on the innovative capabilities of firms. Given how trillions of dollars are invested in acquisitions every year, yet the failure rate of M&As remain at 70-90 percent, the topic is important to analyse. Furthermore, innovation and knowledge are two central motives for acquiring firms, and the failure rate therefore showcases a further need to evaluate why so many M&As fail. The study was carried out by conducting an innovation audit at six firms who have undergone an M&A where the interviews focused on three themes: innovation, motives and integration. The theme Innovation was used to deduce whether the innovative capabilities of the firms have changed or not. The following two themes, motives and integration, was used to better understand why the changes happened. Out of the six firms investigated, three showed positive effects of the M&A regarding innovative capabilities, two showed negative effects and one remained unchanged. The study found a strong link between motives and integration, and the interplay between the two factors ultimately resulted in a deterioration or improvement of the innovative capabilities. The result of the study showcases the need for careful consideration of compatibility before committing to an M&A, as innovation and success of the firm is highly dependent on the outcome of the M&A.