Technology sourcing acquisitions : What they mean for innovation potential

Purpose – The purpose of this paper is to determine what the effects of acquisition are on R&D patterns. Design/methodology/approach – This paper tests whether the actual post‐acquisition R&D intensity of the combined firm deviated from the predicted R&D intensity, where the predicted amount is an asset‐weighted average of pre‐acquisition values. Findings – The results indicate that the combination of technology sourcing and technological relatedness have strong predictive powers for determining changes in post‐acquisition R&D intensity. Technology sourcing acquisition of unrelated technologies results in an increase in post‐acquisition R&D intensity, as predicted. Acquirers in this situation may be using their acquisition as a platform for research expansion. Research limitations/implications – The dataset used in this paper was restricted to public acquirers and targets for completeness of financial information. It would be useful to determine the extent to which a technology sourcing acquirer is predicted to enter into an acquisition and also whether technology sourcing can be used as a predictor for the ultimate target company out of a pool of potential targets. Practical implications – The results can be used to inform managers on a strategic level when research strategy deviates from what the theory would predict. For example, if a company that did a technology sourcing acquisition of an unrelated product subsequently decreased R&D intensity, then rival pharmaceutical firms can ascertain that the acquired research was ultimately determined to be too risky or unviable. Originality/value – The value in this paper is the unique measurement for technology sourcing.