Are takeovers of high-tech companies a good deal for investors?

Abstract

Despite the financial and economic crisis, the high-tech industry has experienced a consistent activity in terms of mergers and acquisitions during the last ten years. Such interest seems still solid as deals continue to hit the headlines of business newspapers. This paper aims at exploring the takeover market focusing on the acquisition of high tech companies during the 2006-2016 decade. We compare the acquisition performed by incumbents competing in the same field, with those undertaken by companies coming from other sectors. Companies willing to acquire or merge another company, are driven by different rationales: the securement of new skills to strengthen their offer and improvement the efficiency of their internal processes belong respectively to the so called horizontal-merger and vertical-merger. An alternative purpose behind the decision to combine two entities lies in the company’s intent to diversify its business, often identified in the literature as conglomerate-merger or diversification-merger. The first hypothesis is that conglomerate-mergers struggle to capitalize the benefits deriving from the synergies -if any, exhibiting weaker stock market reaction across the day of the announcement and inferior performance in the aftermath. The second hypothesis is that, due to company’s overvaluation, the post mergers company’s performance is not worth the premium price paid by the acquirer. Hence, we expect a negative relationship between the performance metrics and the additional price over the target’s book value, invested by the acquirer to finalize the deal Finally, we test if the lack of performance expected from the combination of the two organizations is limited by the lack of knowledge exhibited by the acquirer’s management board. Since the high tech sector evolves at fast pace, acquirer’s management lack in IT knowledge, skill, and experience make it incapable to sustain the development of the acquired company