Google, Facebook, Zynga, and other prominent technology companies in Silicon Valley are buying start-up companies at a brisk pace. In many of these transactions, the buyer has little interest in acquiring the start-up’s projects or assets. Instead, the buyer’s primary motivation is to hire some or all of the start-up’s software engineers. These so-called 'acqui-hires' represent a novel — and increasingly common — tool by which the largest and most successful technology companies in the world satisfy their intense demand for engineering talent....
The Article then considers the most significant economic issue common to all acqui-hires: how to allocate the buyer’s aggregate purchase price between the software engineers and the start-up’s outside investors. We first predict that a money-back-for-the-investors norm will eventually develop and that this norm will drive allocation determinations. We then propose several contractual innovations that could be used in an attempt to augment the investors’ allocations in acqui-hires.
Sources of Gains in Corporate Mergers: Refined Tests from a Neglected Industry
Our work provides refined tests of the existence and source of merger gains in a neglected industry: utilities. While excluded from traditional analyses, utilities offer fertile ground for a detailed analysis of the traditional theories of synergy, collusion, hubris and anticipation. The analysis of utilities provides methodological advantages and is important for public policy reasons. We find that utility mergers create wealth for the combined bidder and target. These positive wealth effects are consistent with both the synergy hypothesis and the collusion hypothesis. To distinguish between the hypotheses, we study the stock price returns to industry rivals across several dimensions specifically related to collusion: deregulation, horizontal mergers, geography, and withdrawn deals. We also examine the impact of mergers on consumer prices. The results are consistent with synergy and inconsistent with collusion. Analysis of industry rivals that subsequently become targets also rejects the collusion hypothesis and is consistent with the anticipation hypothesis.
Value Creation Estimates Beyond Announcement Returns: Mega-Mergers versus Other Mergers
Much of the literature considers only short-term acquirer announcement returns when analyzing which mergers create value for the acquirer. However, announcement returns combine information about value creation because of the merger and a revaluation of the acquirer’s stand-alone value. We use three methods to infer revaluation-free value creation directly because of the merger. We find that despite their negative average announcement returns, acquisitions of public targets typically do not destroy value and, by most measures, create value. Only mega-mergers, the top 1% of mergers in absolute transaction value, destroy value for the acquirer. In contrast, non-mega-mergers create value for the acquirer. We also show that the value destruction in mega-mergers is driven by managerial motives and weak corporate governance.
Does Going Public Affect Innovation?
This paper investigates the effects of going public on innovation by comparing the
innovative activity of firms that went public with firms that withdrew their IPO filing
and remained private. NASDAQ fluctuations during the book-building phase are used
as an instrument for IPO completion. Using patent-based metrics, I find that the
quality of internal innovation declines following the IPO and firms experience both
an exodus of skilled inventors and a decline in productivity of remaining inventors.
However, public firms attract new human capital and acquire external innovations.
The analysis reveals that going public changes firms' strategies in pursuing innovation.
We find a positive relation between mergers and acquisitions (M&A) activity of a firm and its subsequent innovation outcome measured by the number and the novelty of the patents the firm obtains. The positive relation between M&A activity and innovation appears at least as significant as that between R&D and innovation. To identify causality between M&A activity and innovation, we compare the innovation output of failed acquirers to that of successful acquirers and find that failed acquirers obtain fewer patents and patents with lower impact relative to successful acquirers. Acquiring innovative target firms with existing patents is positively related to acquirer abnormal returns at announcement as well as acquirer’s long-term stock return performance after deal completion. Overall, our paper uncovers a previously undocumented role of M&A and suggests that acquiring innovation is an important motive for undertaking M&A.