MIR Publication Almor, Tarba & Margelit, 2014

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Maturing, Technology-Based, Born-GlobalCompanies: Surviving Through Mergers and

Acquisitions

ARTICLE in MANAGEMENT INTERNATIONAL REVIEW AUGUST 2014

Impact Factor: 0.75 DOI: 10.1007/s11575-014-0212-9

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College for Academic Studies

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Management International Review

Journal of International Business

ISSN 0938-8249

Volume 54

Number 4

Manag Int Rev (2014) 54:421-444

DOI 10.1007/s11575-014-0212-9

Maturing, Technology-Based, Born-GlobalCompanies: Surviving Through Mergersand Acquisitions

Tamar Almor, Shlomo Y. Tarba & Avital

Margalit


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R E S E A R C H A R T I C L E

Maturing, Technology-Based, Born-Global Companies:

Surviving Through Mergers and Acquisitions

Tamar Almor Shlomo Y. Tarba Avital Margalit

Received: 15 February 2013 / Revised: 25 September 2013 / Accepted: 27 March 2014 /

Published online: 23 July 2014 Springer-Verlag Berlin Heidelberg 2014

Abstract To date, there has been little research about the corporate growth ofborn-global companies and relatively little data exist about their maturation, sur-

vival as independent companies (or failure to do so) and their international strate-

gies. The present paper is based on an empirical study of Israeli technology-basedcompanies that were identified in the late 1990s as born global. We collected data

about the continuing development of these firms for the decade spanning

20002009. Our findings show that maturing technology-based, born-global com-panies can increase their chances of survival by acquiring other firms. Although

such acquisitions do not increase profits, they allow born-global firms to continueincreasing their sales and to expand and upgrade their product line, which in turn

increases their chances of remaining independent. The data also show that if thefirms prefer to merge with another company, they are in a better position if they do

not acquire any other firms beforehand. Finally, our data show that although the

majority of born-global companies can continue operations if they survived the first

decade, they are not highly successful on the measures of growth and shareholder

wealth. One of the recommendations of this study is that for maturing, technology-based, born-global companies to remain successful, they must be more aggressive intheir M&A strategy than they are at the moment.

Keywords Maturing born-global companies Israeli high-tech Mergers and

acquisitions

T. Almor (&)School of Business Administration, College of Management, Rishon LeZion, Israel

e-mail: [email protected]

S. Y. TarbaManagement School, University of Sheffield, Sheffield, UK

A. MargalitU Conduit Ltd., Ness Ziyona, Israel

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Manag Int Rev (2014) 54:421444

DOI 10.1007/s11575-014-0212-9


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1 Introduction

The emergence of small entrepreneurial companies that internationalize rapidly at theearly stages of their existence has been reported in different countries since the end of the

twentieth century (e.g., Almor 2011;Autioetal. 2000; Knight and Cavusgil 2004; Oviattand McDougall 1994, 1997;Zahraetal. 2000). Most empirical papers about born-global

companies examine firms that exist for less than a decade. Moreover, the studies are

concerned primarily with questions of the initial survival and growth of these companies(Hashai and Almor 2004; Jones and Coviello 2005; Rialp-Criado et al. 2010). Incidentalcase studies published in newspapers, however, have suggested that at least some of

these born-global companies have now been in existence for about two decades, are

maturing, and have been addressing issues that differ from those encountered by the

young companies. The maturing of born-global companies seems to be a relatively new

phenomenon that has not yet been researched to date, and therefore few questions havebeen raised regarding their maturation process. As a result, relatively little data exist

about maturing born-global companies, whether or not they have survived asindependent companies, and what international strategies they use.

The present paper aims to explore the ongoing development of technology-based,

born-global companies after they have experienced initial success, in the first decade of

their operation, by focusing specifically on mergers and acquisitions as a means of

surviving and organizational growth. Growth in the international arena is part and parcelof the continuing success of technology-based, born-global companies, which are funded

mostly by external capital and must show continuing growth in sales and profits in orderto remain attractive to investors(Almor2013).Although there are many examples ofborn-global, technology-based companies that have been acquired by larger technology-

based firms and have been mergedinto the larger businesses (e.g., IVCResearch Centers

Report on Exits2012; Levi2005; Shelah2006; Weber and Tarba2011; Weber et al.

2012a,b), there are relatively few that have survived as independent companies.In the present paper we argue that despite their relatively young age, small size,

and scarcity of resources and capabilities compared to large technology-based

multinational enterprises, born-global companies must use mergers and acquisitions

(M&As) to survive and succeed in a competitive global environment. We examinethe use of M&As by born-global companies empirically and examine whether this

strategy is pertinent to the survival of these companies after their initial success inthe first decade of their operation. We further examine the relationship between the

use of M&As and the financial data of born-global companies.

The paper is organized as follows: we begin by presenting a conceptual framework

that addresses the growth of born-global companies by means of M&A strategies, and

the derived hypotheses. Next, we describe the methods of data acquisition and presentthe results. Finally, we discuss the results and present the conclusions.

2 Conceptual Framework

Rapidly internationalizing, entrepreneurial companies seem to emerge more

frequently in small countries with advanced economies, such as Israel, than in

422 T. Almor et al.

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https://www.researchgate.net/publication/5223142_Internationalization_Conceptualizing_an_Entrepreneurial_Process_of_Behavior_in_Time?el=1_x_8&enrichId=rgreq-206ed5b7-fa71-40fc-b4f2-f977d06caffa&enrichSource=Y292ZXJQYWdlOzI2NTE2NDMxODtBUzoyMTQ2MDU4ODUzODI2NTZAMTQyODE3NzQzODUxNw==https://www.researchgate.net/publication/5223142_Internationalization_Conceptualizing_an_Entrepreneurial_Process_of_Behavior_in_Time?el=1_x_8&enrichId=rgreq-206ed5b7-fa71-40fc-b4f2-f977d06caffa&enrichSource=Y292ZXJQYWdlOzI2NTE2NDMxODtBUzoyMTQ2MDU4ODUzODI2NTZAMTQyODE3NzQzODUxNw==https://www.researchgate.net/publication/5223142_Internationalization_Conceptualizing_an_Entrepreneurial_Process_of_Behavior_in_Time?el=1_x_8&enrichId=rgreq-206ed5b7-fa71-40fc-b4f2-f977d06caffa&enrichSource=Y292ZXJQYWdlOzI2NTE2NDMxODtBUzoyMTQ2MDU4ODUzODI2NTZAMTQyODE3NzQzODUxNw==https://www.researchgate.net/publication/5223142_Internationalization_Conceptualizing_an_Entrepreneurial_Process_of_Behavior_in_Time?el=1_x_8&enrichId=rgreq-206ed5b7-fa71-40fc-b4f2-f977d06caffa&enrichSource=Y292ZXJQYWdlOzI2NTE2NDMxODtBUzoyMTQ2MDU4ODUzODI2NTZAMTQyODE3NzQzODUxNw==https://www.researchgate.net/publication/5223142_Internationalization_Conceptualizing_an_Entrepreneurial_Process_of_Behavior_in_Time?el=1_x_8&enrichId=rgreq-206ed5b7-fa71-40fc-b4f2-f977d06caffa&enrichSource=Y292ZXJQYWdlOzI2NTE2NDMxODtBUzoyMTQ2MDU4ODUzODI2NTZAMTQyODE3NzQzODUxNw==https://www.researchgate.net/publication/5223142_Internationalization_Conceptualizing_an_Entrepreneurial_Process_of_Behavior_in_Time?el=1_x_8&enrichId=rgreq-206ed5b7-fa71-40fc-b4f2-f977d06caffa&enrichSource=Y292ZXJQYWdlOzI2NTE2NDMxODtBUzoyMTQ2MDU4ODUzODI2NTZAMTQyODE3NzQzODUxNw==https://www.researchgate.net/publication/5223142_Internationalization_Conceptualizing_an_Entrepreneurial_Process_of_Behavior_in_Time?el=1_x_8&enrichId=rgreq-206ed5b7-fa71-40fc-b4f2-f977d06caffa&enrichSource=Y292ZXJQYWdlOzI2NTE2NDMxODtBUzoyMTQ2MDU4ODUzODI2NTZAMTQyODE3NzQzODUxNw==https://www.researchgate.net/publication/259389144_Conceptualizing_paths_of_growth_for_the_technology-based_born_global_firm_originating_in_a_small_population_advanced_economy?el=1_x_8&enrichId=rgreq-206ed5b7-fa71-40fc-b4f2-f977d06caffa&enrichSource=Y292ZXJQYWdlOzI2NTE2NDMxODtBUzoyMTQ2MDU4ODUzODI2NTZAMTQyODE3NzQzODUxNw==https://www.researchgate.net/publication/259389144_Conceptualizing_paths_of_growth_for_the_technology-based_born_global_firm_originating_in_a_small_population_advanced_economy?el=1_x_8&enrichId=rgreq-206ed5b7-fa71-40fc-b4f2-f977d06caffa&enrichSource=Y292ZXJQYWdlOzI2NTE2NDMxODtBUzoyMTQ2MDU4ODUzODI2NTZAMTQyODE3NzQzODUxNw==https://www.researchgate.net/publication/259389144_Conceptualizing_paths_of_growth_for_the_technology-based_born_global_firm_originating_in_a_small_population_advanced_economy?el=1_x_8&enrichId=rgreq-206ed5b7-fa71-40fc-b4f2-f977d06caffa&enrichSource=Y292ZXJQYWdlOzI2NTE2NDMxODtBUzoyMTQ2MDU4ODUzODI2NTZAMTQyODE3NzQzODUxNw==https://www.researchgate.net/publication/5223142_Internationalization_Conceptualizing_an_Entrepreneurial_Process_of_Behavior_in_Time?el=1_x_8&enrichId=rgreq-206ed5b7-fa71-40fc-b4f2-f977d06caffa&enrichSource=Y292ZXJQYWdlOzI2NTE2NDMxODtBUzoyMTQ2MDU4ODUzODI2NTZAMTQyODE3NzQzODUxNw==https://www.researchgate.net/publication/259389144_Conceptualizing_paths_of_growth_for_the_technology-based_born_global_firm_originating_in_a_small_population_advanced_economy?el=1_x_8&enrichId=rgreq-206ed5b7-fa71-40fc-b4f2-f977d06caffa&enrichSource=Y292ZXJQYWdlOzI2NTE2NDMxODtBUzoyMTQ2MDU4ODUzODI2NTZAMTQyODE3NzQzODUxNw==https://www.researchgate.net/publication/222975699_A_configuration-holistic_approach_to_born-global_firms_strategy_formation_process?el=1_x_8&enrichId=rgreq-206ed5b7-fa71-40fc-b4f2-f977d06caffa&enrichSource=Y292ZXJQYWdlOzI2NTE2NDMxODtBUzoyMTQ2MDU4ODUzODI2NTZAMTQyODE3NzQzODUxNw==https://www.researchgate.net/publication/255962785_The_Competitive_Advantage_and_Strategic_Configuration_of_Knowledge-Intensive_Small__Medium-Sized_Multinationals_A_Modified_Resource-Based_View?el=1_x_8&enrichId=rgreq-206ed5b7-fa71-40fc-b4f2-f977d06caffa&enrichSource=Y292ZXJQYWdlOzI2NTE2NDMxODtBUzoyMTQ2MDU4ODUzODI2NTZAMTQyODE3NzQzODUxNw==


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larger economies such as the US (Efrat and Shoham 2012; Gabrielsson and

Kirpalani2004; Moen and Servais 2002), and are often referred to in literature as

born-global companies (Autio et al. 2000; Bell et al. 2003; Hashai 2011;Hewerdine and Welch 2013; Melen and Nordman2009). Born-global companies

are frequently characterized as having the ability to create innovative, self-developed, technology-based products that are sold internationally from the start of

their existence (Bell1995; Bloodgood et al.1996; Coviello and Munro1997; Danaet al. 1999; Knight and Cavusgil 2004; Nordman and Melen 2008; Oviatt and

McDougall1994,1997; Rennie1993; Rugman and Wright1999; Zahra et al.2000).

In this paper, born-global companies are defined as business organizations that from

the time of their founding or shortly thereafter seek superior international businessperformance, by creating knowledge-based resources and capabilities in which form

the basis for sales in various countries (Almor 2013; Gabrielsson and Kirpalani

2004; Knight and Cavusgil 2004; Oviatt and McDougall 1994).Technology-based born-global companies are often characterized by their

proprietary technologies and innovations, which they use to differentiate themselves

from other competitors (Aspelund and Moen 2001; Hashai and Almor 2004;

Coviello and Munro 1995; Jones 1999; Knight and Cavusgil 2004; Lewin andMassini2003; Oviatt and McDougall1994; Rialp-Criado et al.2002). These unique

technologies and innovations often have a limited home market, especially when thefirm originates in a small country; therefore, born-global companies are driven to

international markets early in their organizational existence in order to exploit first

mover advantages and monopolistic gains (Acs et al. 1997; Amin and Thrift 1994;Keeble et al.1998; McNaughton2000). This strategy, however, creates a problem

that is not easily solved. Technology-driven companies need to stay in close contactwith their customers, not only to protect their proprietary know-how but also to

receive feedback regarding their technology through the processes of distributionand after-sale services (Almor and Hirsch 1995; Hirsch 1989). This type of

interaction can lead to further technological innovations and also create customer

loyalty and a strong client base. But born-global companies are usually young,

small, and have relatively few resources, which limits their ability to serve a broad

segment of the international markets and large numbers of customers withoutresorting to strategic alliances, which, however, may place their relationship with

customers and their technological innovations at risk (Almor and Hashai 2004).

Many technology-based, born-global companies cope with this quandary byfocusing on global niches in which they typically serve a small number of

organizational customers that create a high added value (Freeman and Cavusgil

2007; Rasmussen and Madsen2002; Rennie1993; Rialp-Criado et al.2002). In this

way, the need for a substantial marketing infrastructure is reduced and a modestmarketing entity may suffice.

Although global focus-differentiation allows the technology-based, born-global

company to grow initially, it also creates dependence upon a highly specific product

life cycle. Although technology products can be upgraded and updated, they stillbelong to a single industry, which eventually declines when it is challenged by new

industries that produce technologically superior substitute products (Christensen1997; Hill and Jones 2004; Foster 1986). This problem is becoming increasingly

Maturing, Technology-Based, Born-Global Companies 423

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acute because product and industry life cycles are becoming compressed. For

example, various Internet-based industries have progressed from initial introduction

to apparent maturity within a few years (Cusumano and Yoffie1998).Furthermore, technology-based, born-global companies frequently finance their

initial growth by means of external capital, floating the company publicly byventure capital or private investments, and therefore they need to continue their

growth in order to remain attractive to investors (Barrow et al. 2005; Manigart andSapienza1999). Therefore, technology-based, born-global companies are expected

not to remain complacent and not to behave like typical niche companies that

remain small. Instead, after they become established in their global niches they must

examine different options for continued growth.One option is to sell the company to another, usually larger technology-based

company. This strategy is commonly used by many high-tech entrepreneurial

companies, and it is considered common among born-global companies as well(PriceWaterhouseCoopers Israel Hi-Tech Exit Report 2012; Senor and Singer

2009). Another option is to grow the company at a relatively high pace. In this paper

we focus on maturing born-global companies that use acquisitions as a means to

survive and remain independent.

2.1 Continuing Growth of the Independent Born-Global Company

Innovation is an important source of value creation in many industries. In the first

decade of the twenty-first century, innovation occurs faster and novel solutionsappear at a more rapid pace than in the previous century, especially in high-

technology industries(King et al.2008; Uhlenbruck et al.2006; Makri et al.2010).As a result, firms must invest many resources in quick innovation of products and

processes that will allow them to remain competitive over time.Born-global companies function in fast-changing technological environments

and must find ways to access new technologies and their associated resources

rapidly. The literature shows that large firms have turned to M&As as a strategy for

obtaining the knowledge needed to create innovations at the required speed and at

the rate needed to either maintain a competitive advantage or to build a new one(Chaudhuri and Tabrizi1999; King et al.2008; Tarba et al.2012; Uhlenbruck et al.

2006; Yurov et al. 2013). Acquisition of external technologies is an accepted

method for firms to increase their technical capabilities, expand their products, tapinto new markets, enhance their market power, and achieve strategic renewal

(Agarwal and Helfat2009; Almor et al.2009; Eisenhardt and Martin2000; Gomes

et al.2013). Therefore, acquisition is a prominent strategy used by many technologyfirms to grow and leverage their capabilities (Sorkin2009; Weber et al.2011a).

Internal development is more expensive and time consuming than an M&A

strategy, and rather problematic for firms that initially have relatively few resources

such as researchers, engineers, managers, laboratories, knowledge, and experience.

Although this does not mean that these firms do not invest in internal developmentat all, but the data show that internal product development can take at least

13 years for such firms (Barkema and Vermeulen1998; Brouthers and Brouthers2000; Hennart and Park1993). Moreover, internal development does not guarantee

424 T. Almor et al.

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success and increases the level of uncertainty for the firm (Slangen2013; Slangen

and Hennart2007,2008). As resources are usually scant, most of these firms cannot

invest simultaneously in upgrading existing products and technologies on one handand in new R&D on the other (Gomes et al. 2011). Acquiring a startup with the

needed technological development or product, and with the professionals whoaccompany this technology, allows much quicker expansion of the product line and

entry into additional markets for the technology-based, born-global company, whilesimultaneously lowering the level of uncertainty associated with R&D processes

(Puranam et al. 2003, 2006; Weber and Tarba 2011; Weber et al. 2012a, b).

Therefore, we hypothesize that:

Hypothesis 1: Technology-based born-global companies that choose to use an

M&A strategy increase their chances to survive and remain independent

relative to companies that do not use an M&A strategy.

In its early years, the typical born-global company is characterized by a narrow

product scope and focused on a narrow geographical market. Literature posits that

growth paths traditionally lie along two axes: product scope and geographical scope

(Ansoff1957; Delios and Beamish1999; Geringer et al. 1989,2000; Grant et al.1988; Hitt et al. 1994, 1997; Palich et al. 2000). Together, these two axes create

various growth options. Successful technology-based, born-global companies,however, frequently adhere to a single growth path rather than combine different

options (Hashai 2011) because they have relatively scarce resources, which are

specific to certain applications, therefore their ability to transfer resources betweenapplications is greatly constrained(Montgomery and Wernerfelt1988).Scarcity of

resources confines a company in the scope of expansion activities it can pursue in agiven time period because of limitations of physical as well as intangible assets such

as management time(Penrose1956). Therefore, it will select the expansion routethat matches its resources best (Montgomery and Wernerfelt 1988).

Because maturation of the product life cycle and even of the industry life cycle is

quickening and industry life cycles are becoming more compressed, especially in

high-tech industries (Weber and Tarba 2011; Weber et al. 2012a, b), technology-

based companies must frequently upgrade their products, as newer technologies andinterfaces appear, creating a need for continually upgrading and updating the

product line. Thus, we argue that to remain independent, technology-based, born-

global companies must invest their resources first and foremost in extending theirproduct line offerings, upgrades, and updates, and must increase the number of

products they offer. These products may be complementary to their existing product

line, related to their core products, or provide different solutions, unrelated to theircore products.

Large high-tech firms frequently use an M&A strategy to expand their product

lines (Deloitte 2011). We suggest that the current high speed of innovation and

technological change encourages born-global, technology-based firms to use a

similar strategy in order to survive in a competitive environment. Born-globalcompanies can use acquisitions to extend, enhance, and broaden their resources and

capabilities similarly to large technology-based firms (Agarwal and Helfat 2009;Eisenhardt and Martin 2000; King et al. 2008). As noted, young born-global


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companies tend to focus on global niches where they offer a highly specific product.

As product life cycles contract, focused born-global companies are looking for ways

to survive and continue growing by extending their product lines; M&As enablerelatively small firms to acquire technical skills and technological capabilities that

they do not possess, enabling them to obtain faster access to resources needed tocontinue developing additional technologies and products (Capron1999; Graebner

2004; Graebner and Eisenhardt2004; Graebner and Sjolander1990; Mowery et al.1996). This leads us to the following hypothesis:

Hypothesis 2: Born-global companies use an M&A strategy foremost in order

to extend their product lines.

We hypothesize that an M&A strategy allows technology-based, born-global

companies to mature independently, but other studies have pointed out problems

with this strategy.Paruchuri et al. (2006)found that post-acquisition integration ishighly disruptive for inventors and entrepreneurs, who incur a great loss in social

status and centrality after their company is acquired, leading to severe drops in their

productivity. Because knowledge is difficult to transfer, a high level of post-

acquisition integration may be required to realize the expected benefits of theseacquisitions (Puranam et al. 2003, 2006). But a high level of integration may

eventually result in cultural clashes, destruction of the knowledge-based resourcesof the acquired firm due to senior management and key employee turnover, and

disruption of organizational routines (Ahammad et al. 2012; Puranam et al. 2003,

2006,2009; Puranam and Srikanth2007; Weber et al.2012a,b).Several comprehensive studies that examined the most frequently used variables

in recent research were not able to establish clear predictors for M&A success orfailure (Stahl and Voight 2008; Haleblian et al. 2009). Moreover, there is no

consistent confirmation that M&A strategy enhances the financial wealth of theacquiring company because the findings of the studies are often inconsistent, mixed,

and even contradictory (Gomes et al. 2011; Papadakis and Thanos 2010;

Schoenberg 2006; Thanos and Papadakis 2012; Weber et al. 2011b). King et al.

(2004) were among the first to examine both stock and accounting measures of post-

acquisition performance among conglomerate firms. They argued that frequentlyused rationales for M&A activity are based on the concept that the sum of merging

two firms is greater than their individual parts. The authors measured the

performance of acquiring firms over a series of time periods, ranging from daysto years. For each of the event windows, the stock and accounting measures used for

the acquisition of firms, including return on assets (ROA), return on equity (ROE)

and return on sales (ROS), were either insignificant or negative. To conclude, themeta-analysis conducted byKing et al. (2004)found that none of the strategic and

financial variables studied are significant in explaining the variance in post-

acquisition performance.

At the same time, evidence exists that acquisitions do create synergies, increase a

firms market and bargaining power, and improve risk diversification (Hitt et al.1998; Tuch and OSullivan2007). Moreover,Hitt et al. (2009)argued that firms that

search for targets with complementary capabilities and mechanisms that facilitatetheir learning from the acquired firm are more likely to build new capabilities and

426 T. Almor et al.

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nd_Acquisitions_Overcoming_Pitfalls_Building_Synergy_and_Creating_Value?el=1_x_8&enrichId=rgreq-206ed5b7-fa71-40fc-b4f2-f977d06caffa&enrichSource=Y292ZXJQYWdlOzI2NTE2NDMxODtBUzoyMTQ2MDU4ODUzODI2NTZAMTQyODE3NzQzODUxNw==https://www.researchgate.net/publication/228315206_Acquisition_Integration_and_Productivity_Losses_in_the_Technical_Core_Disruption_of_Inventors_in_Acquired_Companies?el=1_x_8&enrichId=rgreq-206ed5b7-fa71-40fc-b4f2-f977d06caffa&enrichSource=Y292ZXJQYWdlOzI2NTE2NDMxODtBUzoyMTQ2MDU4ODUzODI2NTZAMTQyODE3NzQzODUxNw==https://www.researchgate.net/publication/222080402_A_Bird_in_the_Hand_or_Two_in_the_Bush?el=1_x_8&enrichId=rgreq-206ed5b7-fa71-40fc-b4f2-f977d06caffa&enrichSource=Y292ZXJQYWdlOzI2NTE2NDMxODtBUzoyMTQ2MDU4ODUzODI2NTZAMTQyODE3NzQzODUxNw==https://www.researchgate.net/publication/49244128_Mergers_and_Acquisitions_Overcoming_Pitfalls_Building_Synergy_and_Creating_Value?el=1_x_8&enrichId=rgreq-206ed5b7-fa71-40fc-b4f2-f977d06caffa&enrichSource=Y292ZXJQYWdlOzI2NTE2NDMxODtBUzoyMTQ2MDU4ODUzODI2NTZAMTQyODE3NzQzODUxNw==https://www.researchgate.net/publication/228319127_Taking_Stock_of_What_We_Know_About_Mergers_and_Acquisitions_A_Review_and_Research_Agenda?el=1_x_8&enrichId=rgreq-206ed5b7-fa71-40fc-b4f2-f977d06caffa&enrichSource=Y292ZXJQYWdlOzI2NTE2NDMxODtBUzoyMTQ2MDU4ODUzODI2NTZAMTQyODE3NzQzODUxNw==https://www.researchgate.net/publication/277518233_Do_Cultural_Differences_Matter_in_Mergers_and_Acquisitions_A_Tentative_Model_and_Examination?el=1_x_8&enrichId=rgreq-206ed5b7-fa71-40fc-b4f2-f977d06caffa&enrichSource=Y292ZXJQYWdlOzI2NTE2NDMxODtBUzoyMTQ2MDU4ODUzODI2NTZAMTQyODE3NzQzODUxNw==https://www.researchgate.net/publication/47706001_Meta-analyses_of_Post_Acquisition_Performance_Indications_of_Unidentified_Moderators?el=1_x_8&enrichId=rgreq-206ed5b7-fa71-40fc-b4f2-f977d06caffa&enrichSource=Y292ZXJQYWdlOzI2NTE2NDMxODtBUzoyMTQ2MDU4ODUzODI2NTZAMTQyODE3NzQzODUxNw==


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enhance their competitive position in the market. Thus, as Ranft (2006) and Ranft

and Lord (2000,2002) found, the use of acquisitions to gain new technologies and

capabilities seems to remain a durable and important feature of M&As in the high-tech sectors.

Although the literature indicates that M&A strategy does not always seem to bethe best way for a company to gain financial profit (King et al. 2004), established

firms gain access to new technologies and know-how when they acquire startups(Benson and Ziedonis2009).Indeed, studies show that M&A strategy can succeed

if the acquirer identifies and monitors the technological activities when acquiring a

startup(Benson and Ziedonis2009), if the two firms are similar in their business

focus, technology, and culture, and if they manage correctly the post-acquisitionprocess. Studies further show that if a buyer is larger than the acquired firm the

chances of financial gain increase (Homberg et al. 2009).

In the present paper we assume that technology-based, born-global companiesacquire relatively small startups that are also technology-based and have similar

business focus and cultures. In many instances, the workforce of both the born-

global company and of the acquired startup consists of a high percentage of

engineers who have similar education, experience, and backgrounds. Moreover, theacquired startups are frequently looking to exit by means of an M&A and

therefore experience lower levels of resentment. Although we assume that an M&Astrategy has a relatively high chance of enabling the born-global firm to remain

independent by enhancing its strategic abilities, we hypothesize that the use of

M&As does not increase shareholders wealth.Hypothesis 3a: Technology-based, born-global companies that use an M&A

strategy do not experience a significant change in their level of profits and

shareholder wealth.

Graebner et al. (2010)noted that company executives hope to accomplish three

main goals when they implement an M&A strategy: (a) to harness the innovative

power of acquired firms and access complex knowledge, (b) to expand their market

footprint to new geographic regions or customer groups and to eliminate both

current and potential rivals; and (c) to create opportunities for resource reconfig-uration and recombination of technologies.

Studies that examined whether and how the number of M&As affects a

companys competitive advantage report mixed findings. For example, Haywardsstudy (2002), based on a sample of 214 acquisitions made by 120 firms in 6

industries between 1990 and 1995, found that a firms focal acquisition performance

correlates positively with prior acquisition experience. But based on an analysis ofthe most active acquirers in seven industry sectors in the US in the 1990s, Laamanen

and Keil (2008) found that although both a high rate of acquisitions and high

variability of the rate correlate negatively with the performance of the acquiring

firms, the acquisition experience moderates the afore-mentioned relationship by

weakening the negative effects.Zollo and Singh (2004),however, using a sample of228 acquisitions in the US banking industry, reached the conclusion that the

accumulation of experience by the acquiring firms does not affect acquisitionperformance.


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Technology-based, born-global companies frequently need to grow fast because

of the speed of innovation and the possible obsolescence of their product and of its

underlying technologies. Moreover, it is important for relatively young technology-based companies to continue increasing their sales, at times even more so than

creating high profits. In many cases, growth in sales is a better indicator of the worthof such a company than profits are.

If the number of M&As does not necessarily affect the success of the firm,cumulative experience in managing the post-acquisition process does enhance the

chances for success. Firms that are experienced in the management of the post-

acquisition process usually develop methodologies that help them manage the

process, which increases their chances of long-term survival and growth (Almoret al. 2009; Cording et al. 2008; Ellis et al. 2009, 2012; Junni and Sarala 2011,

2013a,b; Schoenberg2004; Vaara et al.2012; Weber et al.2011a).

We expect technology-based, born-global companies that have managed thepost-acquisition process more than once over the period of a decade to grow quicker

than companies that have experienced the post-acquisition process only once.

Hypothesis 3b: The volume of sales of technology-based, born-global

companies that have acquired more than one firm increases over a decade

more than the volume of sales of companies that have acquired only one other

firm.

3 Method and Sample

3.1 Population: Israeli Technology-Based Born-Global Companies

Israel is poor in natural resources but rich in human capital. It has a high proportion

of scientists and engineers in the population, with approximately 130 scientists and

engineers for every 10,000 workers(Chorev and Anderson2006),compared with 80

in the US and 75 in Japan. Israel has the greatest R&D expenditure in the world as apercentage of GDP (Traston et al. 2002) and the highest number of startups in the

world relative to population size. In the last decades, Israel has emerged as animportant global center of innovation and entrepreneurship, which has brought

about prosperity for a large part of its population (Bank and Almor 2013; Engel and

del-Palacio 2011). Knowledge-intensive industries, as well as private and public

venture capital, have helped industry and service sectors flourish and hundreds of

born-global companies to be established(Economist2008; Zilber2006).Since the beginning of the 1990s, the government of Israel has created an

environment conducive to entrepreneurship. It established dozens of incubators,enabling entrepreneurs to start out in a protected environment. Simultaneously, the

government stimulated the establishment of a venture capital industry to encouragefinancial investments in the budding start-ups. It also set aside a significant budget

for the Chief Scientist Office, which allocates funds to subsidize the development of

new applications and technologies. But as most of these growing companies focuson markets outside Israel, they attempt to list their companies as quickly as possible

428 T. Almor et al.

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on foreign stock exchanges to signal to their foreign clients that they are serious

even though they are young, small, and originate in Israel, located in a region not

known for its stability (Blass and Yafeh 1998). Thus, in the past two decades,hundreds of Israeli firms have been listed (and de-listed) on NASDAQ, an American

stock exchange which specializes in high-tech companies. Israeli born-globalcompanies have also been listed on other foreign stock exchanges (Avnimelech and

Teubal2006; Senor and Singer2009). Although a focus on listed companies mayskew the results, this is the only way to collect financial and other data regarding

born-global companies. In sum, Israel presents a good case for studying maturing

technology-based, born-global companies.

To examine the extent to which maturing technology-based, born-globalcompanies survive and grow by means of M&As, we collected data for the years

20002009 from firms that (a) were defined as born-global firms, (b) were part of

the Information and Communication Technology (ICT) sector in the year 1999, and(c) originated in Israel. The ICT sector includes the software, hardware, and

electronics industries.

During the 1990s, thousands of startups were established in Israel, and a few

hundred of them became born-global companies. At the time, ICT, bio-tech, andmedical devices were leading Israeli industries in which startups developed. But

startups in the bio-tech industry traditionally have a very long ramp-up period, andmany of them are maturing only in the second decade of the twenty-first century.

Many startups specializing in medical devices disappeared during the high-tech

crisis at the turn of the twenty-first century. As a result, a large portion of thematuring born-global firms in Israel are found in the ICT industry. At the end of the

1990s, about 150 small Israeli high-tech firms were trading on NASDAQ, half ofwhich were born-global firms. This number was unmatched by other countries,

making Israel into the second most-traded foreign country on NASDAQ, afterCanada, at the beginning of the twenty-first century.

3.2 Sample

The sample of the population that was examined empirically in this study was basedon a previous sample of 75 Israeli, technology-based, born-global companies that

existed before the year 2000 and were publicly traded at that time, mostly on

NASDAQ but also on other foreign stock exchanges (Hashai and Almor2004).Inthe present study we went back to the original sample and tracked all the firms since

1999. The current study is based on those born-global firms that were in existence in

the year 2000 and continued to exist independently until at least the year 2010.The current study focuses on 57 firms from the original sample that belonged to

the ICT industry. Data for the years 2000 and 2009 were collected for these firms.

All ICT firms that were part of the original 1999 sample were traced, and their

annual reports were examined for the years 20002009. The sample for the current

study was created as follows:

1. Initially we focused on 57 born-global companies in the ICT sector that existedin the year 2000 and were included in the previous study.


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2. Data showed that 40 of these firms had survived independently until 2009, 16

were acquired, and one ceased to exist.

3. Of the 40 firms that survived, 33 had acquired at least one other companyduring that decade, but only 28 of these survived after the year 2009. The

follow-up study was conducted in 2012, and after exhaustive and carefulresearch, annual data were found for only 28 maturing, born-global companies

that acquired at least one company during the years 20002009.

4. The 28 maturing, born-global, ICT firms had acquired 110 other firms duringthe decade under examination. The 110 acquisitions that took place in theperiod 20002009 formed the basis for part of this study.

By focusing on firms that are traded publicly, we were able to examine the

historical development of firms with a proven track record of business activity anduse public data such as annual financial reports, analyst reports, newspaper articles,

etc., which allowed us to conduct a content analysis of the development of these

firms between 20002009.Information regarding the acquisitions was found in the annual statements of

each company. Because these companies are publicly traded, the acquiring

company must specify the details of the acquisition in a section within the annual

report. This section includes the name of the acquired firm, the acquisition price,and reasons for the action, product type, and type of integration. In some cases,

we used other sources as well, such as the firms official website and pressreleases.

Descriptive statistics show that the 28 firms in the sample were relatively small in2000 (sales median of approximately $65 M and fewer than 1,000 employees) and

had a very strong international orientation: only 8 % of their revenues on average

were generated in the Israeli market. The firms were young, established on averagein 1990 (between the years 19821996), and started selling their first product

outside Israel on average within 2 years after their establishment. In 2009, sales hadgrown to a median of $87 M.

The data collected for each M&A included the acquirer firm, acquired firm, year

of acquisition, location of the acquired firm, acquisition price, the primary reason

for the M&A (based on quotations from the official websites of the firms, annualstatements, or financial websites), and the type of product (complementary orcompetitor).

Descriptive statistics show that the 110 M&As created by the 28 firms in the

sample generally occurred for complementary product purposes (80 %), whichallowed the companies to continue developing their current product line and expand

it with related products. The average acquisition price of these 110 M&As was

$20 M, indicating that most acquisitions were of small firms.Figure1 shows that 47 % of all acquisitions were of US-based companies.

The E.U. and Israel share second place, each representing 22 % of allacquisitions in the sample. Together, these three geographic locations represent

91 % of the countries of origin of the firms acquired by the Israeli born-global

firms.

430 T. Almor et al.

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3.3 Data and Measures

A company was defined as independent if during the period 20002009 all three

conditions existed:

it continued publishing its annual report; its stock was traded on a stock market;

it had an official website that specified the businesses and activities of thecompany at least until the end of 2009.

A company was defined as acquired if during the studied period: there were no annual reports, or not all were found;

its stock stopped being traded on a stock market at some point during the period

studied;

its official website could not be found; Internet search results indicated that the company was acquired by another

company;

the acquirers official website provided information about its acquisition

(acquired company, year of acquisition, price, and reasons);

the original product name still existed, but the name was acquired by anothercompany.

A company was defined as ceased to exist if:

no annual reports were published anymore;

Asia, 4, 3%Australia, 1, 1%

Canada, 4, 4%

Europe, 24,

22%

Israel, 24,

22%South America,

1, 1%

USA, 51, 47%

Fig. 1 Geographic location of the acquired firms


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its stock was no longer traded on a stock market;

its official website could not be found;

Internet search results indicated that the company ceased to exist; no indication existed that it merged with another company.

No single measure captures all the dimensions of financial performance

(Graebner et al. 2010; Zollo and Meier 2008). Commonly used measures in

M&A studies are accounting measures such as sales, profit, shareholders equity, and

ROE derived from financial statements (King et al. 2004; Homberg et al. 2009;Benson and Ziedonis2009). In the present study, we used three groups of financial

parameters calculated from the balance sheets, the P&L statements, and from data

gathered on stock prices in order to measure financial performance:

growth in sales between the years 20002009;

change in profitability, i.e., gross profit, operating profit, and net profit between20002009;

change in profitability to shareholders, i.e., earnings per share (EPS) and return

on equity (ROE) between 20002009.

To determine the reason for the acquisition, we reviewed the companies annual

reports before and after the acquisition, as well as sources such as the officialwebsite of the company and press releases published close to the time of the

acquisition announcement about the location of the acquired firm, acquisition price,product line, type of integration, and the reason for the acquisition. Next, we

performed a content analysis. Three experts reviewed the veracity of the data andthe categorization of the reason for the acquisition for each of the 110 acquisitions.

In 85 % of the cases there was unequivocal agreement between the three experts; in

case of disagreement, the information was reexamined and discussed, and a decisionwas reached by the most experienced expert, with the agreement of the other two.

4 Results

To test the first hypothesis (that technology-based, born-global companies thatchoose an M&A strategy increase their chances of surviving and remainingindependent compared with companies that do not pursue such a strategy), we

created a database in SPSS (PASW Statistics 18) consisting of two columns: (a) a

numeric variable that specified whether a firm did or did not perform an M&A, and(b) a numeric variable that specified whether after 10 years a firm survived and

remained independent, was acquired by another firm, or ceased to exist. As noted,

57 firms participated in this test. A Chi square test was used to determine whether arelationship exists between the two categorical variables, and in particular whether

one or both variables have more than two levels (IsM&A has 2 levels: Yes and No,and IsSurvived has 3 levels: Yes, Acquired, and Ceased to Exist).

Table1presents the joint frequency distribution of the 57 companies examined.

Findings show that 39 (68 %) acquired other firms during 20002009. Moreover, 40(70 %) of the companies remained independent after a decade, 16 (28 %) were

432 T. Almor et al.

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acquired, and 1 company (2 %) ceased to exist. When examining only the 40companies that survived after a decade, 33 (82.5 %) acquired other firms and only 7

(17.5 %) did not. The Chi Square Test show that a statistically significantrelationship (P\0.05) exists between the decision to use an M&A strategy and the

ability to remain independent (v2 (2, N =57) =14.363, P =0.001), supportingHypothesis 1 that technology-based, born-global companies that use M&As

increase their chance of surviving and remaining independent. Findings further

show a negative correlation between being acquired and acquiring. In other words,

if a company prefers to be acquired by another company, it should not acquire otherfirms; but if it prefers to remain independent, it should use an M&A strategy and

acquire other firms.

Our second hypothesis concerned the reason why a maturing, born-globalcompany would acquire another firm, and we suggested that an M&A strategy is

used more frequently in order to expand the scope of the product line than for other

purposes. Overall, the results showed that the purpose of 80 % of M&As was to

access complementary products. Statistics about the purpose of the acquisition show

Table 1 Frequency of M&A activity, the status of 57 companies after a decade and Chi square test ofdifferences in status

Status after a decade Total

Survived Acquired Ceased to exist

Used M&A

No

Count 7 11 0 18

% within used M&A 38.9 % 61.1 % 0.0 % 100.0 %

% within status after a decade 17.5 % 68.8 % 0.0 % 31.6 %

% of total 12.3 % 19.3 % 0.0 % 31.6 %

Yes

Count 33 5 1 39

% within used M&A 84.6 % 12.8 % 2.6 % 100.0 %


% of total 57.9 % 8.8 % 1.8 % 68.4 %

Total

Count 40 16 1 57

% within used M&A 70.2 % 28.1 % 1.8 % 100.0 %


% of total 70.2 % 28.1 % 1.8 % 100.0 %

Value df Asymp. Sig. (2-sided)

Pearson Chi square 14.363 2 0.001

Likelihood ratio 14.124 2 0.001

Linear-by-linear association 8.975 1 0.003

N of valid cases 57


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that 75 of the examined acquisitions (68 %) were reported to expand product scope,

14 (13 %) to expand into additional geographic markets, 5 (4.5 %) to reach newtypes of customers, 6 (5.5 %) to expand both the product and country scope, 6

(5.5 %) to expand product and customer scope, 3 (3 %) to expand country and

customer scope, and 1 (1 %) to expand product, country, and customer scope.Table2presents the one-proportion z-test used to test the purpose of the 110 M&As

in the sample. The one-proportion z test indicates that there is a statistically

significant difference (P\0.05) between the decision to expand the product scope

and to grow along each of the other paths (v2 (6,N =110) =267.236,P =0.000),when the expected value is equal for all paths of growth. Thus, we can conclude that

acquisitions made by the firms in this sample most frequently serve the purpose of

product line extension, supporting Hypothesis 2.

Hypotheses 3a and 3b refer to the relationship between the use of an M&Astrategy and financial performance. We posed that technology-based, born-global

companies that use an M&A strategy do not experience a significant increase in

long-term financial performance, and that companies that acquire more than onefirm increase their sales volume over time more than those that acquire only one

firm.

To study these hypotheses, we focused on the 28 companies that acquired other

firms between the years 20002009 and remained independent during these years.Financial data from the annual reports regarding growth in sales, profitability, and

share price were compared for the first and the last year of the decade studied. Weused the Wilcoxon signed-rank sum test for the comparison because we could not

assume that the difference between the two variables was interval-based andnormally distributed, but we did assume that the difference was ordinal. The

Wilcoxon signed-rank sum test is the non-parametric version of a paired samplesttest.

Table 2 One-proportionztest for 110 M&As performe

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MIR Publication Almor, Tarba & Margelit, 2014