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AMBS study into essential role of M&A market in valuing technologies

A study co-authored by accounting and finance academics at AMBS has highlighted the essential role that the M&A (Mergers and Acquisitions) market plays in generating and conveying information of common interest about the price and value of technologies.

The study evidences the essential role of M&A transactions and cross-firm technology links in the information transmission process. Co-author Ning Gao, Professor of Finance at AMBS, said: “Valuing technology can be a daunting task as technology can be difficult to understand and technology owners are also reluctant to disclose information due to competition pressures. As such, our study explored two key questions. Firstly, to what extent do acquisitions generate and transmit information about the value of technology that is of common interest among technology peers? And secondly, what is the mechanism of the underlying information transmission process?”

Value revision

Co-author Amedeo De Cesari, also Professor of Finance at AMBS, said the research found that M&A announcements coincided with upward value revisions for firms that are technologically close to the target firms.

“Using sophisticated econometric methods, we established robust evidence of upward value revisions at deal announcements for the target firms’ technology peers, confirming that acquisitions disseminate novel information about the value of technology.”

This value revision is a robust economic phenomenon rather than being driven by merger waves or technology booms. Adds Professor De Cesari: “Acquisitions elevate the expectation of technology synergies and increase the probability of future deals for technology peers. Indeed, technology peers’ abnormal returns are greater when peers are more vulnerable to acquisitions. Furthermore, a firm is more likely to be an acquisition target in a year when one or more of its peers received an acquisition bid in the previous year.”


The research found that acquisitions do not cause an unhealthy change in industrial competition. Customers of acquiring firms do not suffer from negative abnormal returns on average, or in deals most likely to be classified as “killer acquisitions” (with the intention to discontinue the targets’ ongoing R&D projects to pre-empt future competition).

The authors say that understanding that acquisitions, together with technology links, play an essential role in the information-transmission process is crucial in terms of firms’ M&A and innovation strategies.

Adds Professor Gao: “Firms that aim to undertake acquisitions would find this knowledge particularly important in the target selection and valuation processes. It would also inform firms’ anti-merger policies to adapt to the landscape changes brought about by acquisitions of technologically close firms.

“This study also assists government efforts to incentivise innovation activities and facilitate the price discovery of technology assets, especially for small firms. It also provides a useful reference for antitrust agencies to calibrate antitrust intervention against acquisitions.”

The paper, which has now appeared in Management Science, was co-authored with Dr. Xiangshang Cai from the Management School of University of Liverpool and Dr. Ni Peng from Queen Mary University of London.