Bilateral Resource Redeployment and Capabilities Improvement Following Horizontal Acquisitions

Abstract

This paper studies the incidence and impact of bilateral redeployment of resources between target and acquiring firms following 253 horizontal acquisitions involving North American and European firms between 1988 and 1992. The resources include ten types of technical, commercial, administrative and financial resources. We find that acquisitions often involve substantial technical and commercial integration of the resources of the acquirer and target, while representing managerial and financial expansion of the acquirer rather than the target. In turn, we show that bilateral redeployment improves five types of capabilities of the acquiring and target businesses, induding R&D capabilities, time to market, product quality, product cost and output flexibility. The empirical implications support the conceptual argument that acquisitions play a key role in business adaptation.