Getting a deal: A study on innovation and acquisition value

The value of technological acquisitions has continued to climb, with an increasing volume of megadeals exceeding $5 billion. While there has been a plethora of research focused on either post-acquisition innovative productivity or value creation, there has been a lack of research that accounts for the post-acquisition innovative productivity of the target employees relative to the cost to acquire the target. We utilize social identity theory to explicate how technological overlap and similarity in technological prestige affect the antecedents of organizational identification (i.e., distinctiveness, prestige, and continuity) and thus, post-acquisition innovative productivity, while we utilize a strategic factor market perspective to examine their effect on the price paid for the target. In doing so, we develop a measure of innovation return on innovation (i.e., innovative productivity/target price). We submit and find evidence that technological overlap and similarity in prestige facilitate identification as the acquirer receives a greater innovation ROI with target and acquirer collaboration; however, we find that the target having higher prestige negatively influences collaborative innovation ROI. Finally, we find that the acquisition value moderates the effects that technological overlap, similarity in prestige, and the target being more prestigious have on innovation ROI from target and acquirer collaboration. • Examines innovation ROI (innovative productivity relative to acquisition value). • Differentiates between integrative innovations and independent innovations. • Technological overlap and similar prestige influence integrative innovation ROI. • Acquisition value moderates the effects of overlap and prestige on innovative outcomes. • Independent innovations are not significantly influenced by identification factors.