Does Patenting Increase the Probability of Being Acquired? Evidence from Cross-Border and Domestic Acquisitions

Mergers and acquisitions (M&As) are drivenby the market for corporate control or industry-driven shocks. This studyconsiders whether patenting by a firm increases the probability that it will beacquired.There are several reasons one might expect this to be so: Firms thathave lost the patent race may wish to buy the patent; firms that amass patentportfolios may purchase firms with inefficient intellectual propertymanagement; firms may wish to buy technology that is divulged by patentapplications; and small startups may transfer patent ownership to larger firmsas part of trend to vertical mergers. The study was based on data for 817 Finnish firms. Of them, 405 were targetsof M&As, and 412 were not targeted; of the total,292 firms acquiredby other Finnish firms. Patent data is taken from the European Patent Office(EPO) for the period 1998-2000.Analysis found that patenting by a Finnishfirm through the EPO correlates with the probability of being acquired by anon-Finnish firm. The effect of patenting on acquisition by another Finnishfirm is uncertain. Patenting through the EPO thus exposes Finnish firms to cross-borderM&As. Data also suggest that the larger the firm, the more likely it willbe acquired. Characteristics of targets for Finnish and non-Finnish firmsdiffer. Firms with inefficient intellectual property management are likelytargets. (TNM)