A Capabilities-Based Perspective on Target Selection in Acquisitions
Strategic Management Journal, Forthcoming
42 Pages Posted: 20 Mar 2015 Last revised: 20 Jun 2015
Date Written: March 18, 2015
We develop a capabilities-based theory of acquirer target selection, arguing that acquirers will pursue both low capability targets in existing contexts to deploy existing capabilities, and high capability targets in new contexts to acquire new capabilities. These arguments are formalized in an analytical model that jointly considers the benefits and costs of acquisition as a function of target capability level and context. The predictions from this model are tested in the Chinese Brewing industry (1998-2007), with results showing that acquirers strongly prefer inferior targets in existing geographic markets, but are relatively more likely to choose superior targets in new markets, especially if they have strong acquisition capabilities. Our study provides insight into the factors driving target selection, and contributes to a capabilities-based understanding of acquisitions.
Keywords: Acquisitions, Organizational Capabilities, Acquisition Capabilities, Geographic Diversification, Target Choice
JEL Classification: C12, G34, L66, N65
Suggested Citation: Suggested Citation