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Strategic complementarities in M&As: evidence from the US information retrieval services industry

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Abstract

The information age has increased our dependency on data, and consequently the economic value of information retrieval services (IRS) companies. While mergers and acquisitions (M&As) are a popular means to sustain growth for these companies, they often fail to fulfill the promise of shareholder value creation. This makes the inquiry into market valuation of M&As in the IRS industry timely and important. Using the concept of strategic complementarity that is relatively new in the M&A literature, we study industry and geographic complementarities between acquirers and targets as well as acquirer- and market-specific contingency factors to better understand market valuation of M&As. In an empirical study of 821 M&As by 150 firms in the US IRS industry between 1993 and 2006, we show that the two types of complementarities have contrasting effects on market valuation of M&As. While the effect is positive for geographic complementarity at both state and division levels, the effect of industry complementarity is found to be negative except for acquirers in the Internet software and services mid-industry. Additionally, our findings provide insights on the role of three contingent factors—acquirers’ age, size and stock market growth—that can help better understand diverging effects of industry and geographic complementarities.

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Notes

  1. http://www.crsp.com/documentation/product/stkind/index_methodologies/stock_file_indices.html.

  2. http://mergers.thomsonib.com/td/DealSearch/help/nidef.htm.

  3. http://mergers.thomsonib.com/td/DealSearch/help/nidef.htm.

  4. Target firms’ mid-industry classification includes advertising and marketing, asset management and components, automotive retailing, banks, broadcasting, brokerage, building/construction and engineering, cable, chemicals, computers and electronics retailing, computers and peripherals, credit institutions, discount and department store retailing, E-commerce/B2B, electronics, employment services, healthcare equipment and supplies, healthcare providers and services (HMOs), hospitals, insurance, Internet and catalog retailing, Internet software and services, IT consulting and services, motion pictures/audio visual, national agency, other consumer products, other financials, other high technology, other industrials, other media and entertainment, other retailing, other telecom, professional services, publishing, real estate management and development, recreation and leisure, software, space and satellites, telecommunications equipment, telecommunications services, transportation and infrastructures, travel services, water and waste management, and wireless.

  5. http://www.census.gov/geo/maps-data/maps/pdfs/reference/us_regdiv.pdf.

  6. We also ran fixed-effects models. The results generally confirmed the effects found in random-effects GLS models. The results are available from the authors.

  7. Given that various measures of industry complementarity are correlated (the same is true for the measures of geographic complementarity), we tested several full models with different combinations of measures for industry and geographic complementarities. We report here the model with significant coefficients for both types of complementarities when included together in the model.

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Authors and Affiliations

  1. Department of Management, Pamplin College of Business, Virginia Tech, Blacksburg, VA, 24061-0101, USA

    Olga Bruyaka

  2. Department of Business Information Technology, Pamplin College of Business, Virginia Tech, Blacksburg, VA, 24061-0101, USA

    Tabitha James & Deborah F. Cook

  3. Department of Accounting and Information Systems, Pamplin College of Business, Virginia Tech, Blacksburg, VA, 24061-0101, USA

    Reza Barkhi

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  1. Olga Bruyaka
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  4. Reza Barkhi
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Correspondence to Reza Barkhi.

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Bruyaka, O., James, T., Cook, D.F. et al. Strategic complementarities in M&As: evidence from the US information retrieval services industry. Inf Technol Manag 16, 97–116 (2015). https://doi.org/10.1007/s10799-014-0194-0

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