Do Acquirer Capabilities Affect Acquisition Performance? Examining Strategic and Effectiveness Capabilities in Acquirers

This paper examines acquisition performance from the perspective of acquirer capabilities. It argues that the strategic capabilities underpinning a firm’s competitive strategy can be utilized to create economic value in acquisitions. Acquirers with strong cost leadership capabilities are expected to leverage these capabilities to reduce post-acquisition costs as they integrate acquisition targets. Acquirers with strong differentiation capabilities are expected to utilize their strategic capabilities to increase post-acquisition revenues by improving branding, product design, sales, and services in their targets. We also explore the affect of an acquirer’s effectiveness capabilities on acquisition performance. Lastly, we examine how acquirer’s organize these capabilities, either at the business unit or corporate-level, in order to maximize their affect on acquisition performance. Based on a sample of 204 horizontal acquisitions occurring in the banking industry, we find support for the link between acquirer cost leadership capabilities and post-acquisition cost reduction. Acquirer effectiveness capabilities are associated with improvements in post-acquisition revenues and profitability. We conclude that a better understanding of the competitive capabilities of acquirers is important to understanding acquisition performance. This contributes directly to horizontal acquisition research, but can be extended to several areas of strategy research on M&As including: diversifying acquisitions, acquirer experience, and how acquirers can avoid “synergy traps”.