Interorganizational Imitation and Acquisitions of High‐tech Ventures

• Published date: 01 December 2017
• Date: 01 December 2017
• DOI: http://doi.org/10.1002/smj.2666
• Author: Umit Ozmel,Cheng‐Wei Wu,Jeffrey J. Reuer

Strategic Management Journal

Strat. Mgmt. J.,38: 2647–2665 (2017)

Published online EarlyView 15 June 2017 in WileyOnline Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2666

Received 10 November 2013;Final revisionreceived 28 November 2016

Interorganizational Imitation and Acquisitions

of High-tech Ventures

Umit Ozmel,1*Jeffrey J. Reuer,2and Cheng-Wei Wu3

1Krannert School of Management, Purdue University, West Lafayette, Indiana

2Leeds School of Business, University of Colorado, Boulder, Colorado

3Faculty of Business and Economics, The University of Hong Kong, Pokfulam, Hong

Kong

Research summary: This article shows that there is a positive association between the changes

in the number of prior acquisitions or the changes in the prominence of prior acquirers within

the focal venture’s subeld and the venture’s likelihood to be acquired. Results are in line with

the existence of frequency- and trait-based imitation in acquisitions targetingtech ventures. More

importantly, these positive associations are more pronounced when (a) exogenous technological

uncertainty within the venture’ssubeld increases and (b) there are signicant differencesbetween

the focal venture’s and acquirer’s technological resources. Our ndings are in accord with

the suggestion that uncertainty in the technology domain is an important boundary condition

in moderating the extent of imitation in technology acquisitions. We also discuss alternative

explanations and implications.

Managerial summary: The ndings of this article suggest that when deciding whether or not

to acquire a technology venture (i.e., startup company in a high-tech industry), managers infer

information by observing other acquisitions in the venture’s subeld to make assessments about

the underlying value of the potential targets. We also nd that receiving some informational cues

from previous acquisitions would be more useful when there is high technological uncertainty in

the potential target’s subeld about which technologieswill be dominant, and when the potential

acquirer and the tech venture operate in dissimilar technological areas. This article shows that

imitation can be one way to deal with decision-making under uncertainty when making acquisition

decisions in high-tech environments. Copyright © 2017 John Wiley & Sons, Ltd.

It is well known that technology ventures present

uncertainty to potential acquirers given that these

ventures generally lack established track records,

are privately held, and their knowledge resources

are tacit (e.g., Amit, Glosten, & Muller, 1990;

Ransbotham & Mitra, 2010; Ozmel & Guler, 2015;

Ozmel, Reuer, & Gulati, 2013; Stuart, Hoang,

& Hybels, 1999). Faced with such uncertainties,

Keywords: interorganizational imitation; mergers and

acquisitions; technology related uncertainty; entrepreneur-

ship; technology acquisitions

*Correspondence to: Umit Ozmel, Krannert School of Manage-

ment, Purdue University,West Lafayette, IN 47907-2506. E-mail:

uozmelya@purdue.edu

Copyright © 2017 John Wiley & Sons, Ltd.

potential acquirers may not acquire a venture,

and deals that would be valuable for acquirers

and targets alike may fail to occur (e.g., Higgins

& Rodriguez, 2006; Shane & Cable, 2002). It is

therefore important to investigate the factors that

can facilitate acquisitions of such ventures (Arikan

& Capron, 2010; Arikan & McGahan, 2010; Brau,

Francis, & Kohers, 2003; DeTienne, 2010; Ozmel,

Robinson & Stuart, 2013; Sanders & Boivie, 2004).

When faced with uncertainty, potential acquirers

may be substantially inuenced by other rms’

actions and hence imitate previous acquisitions by

others (e.g., Lieberman & Asaba, 2006). In this

article, we rst analyze frequency- and trait-based

2648 U. Ozmel, J. J. Reuer, and C.-W. Wu

imitation (Haunschild & Miner, 1997) in

acquisitions involving technology ventures.

Specically, we rst suggest that there is a positive

within-subeld level association between (a) the

changes in the number of acquisitions targeting

the focal venture’s rivals in the subeld, and (b)

the changes in the prominence of acquirers in such

acquisitions, and the venture’s likelihood to be

acquired, which is consistent with frequency- and

trait-based imitation, respectively.

Even though previous studies show that imitation

is more likely to occur when there is higher uncer-

tainty (e.g., Lieberman & Asaba, 2006), such stud-

ies focus on the uncertainty pertaining to nontech

industries as well as sources of uncertainty relevant

to established, public companies (e.g., Haunschild

& Miner, 1997; Henisz & Delios, 2001). However,

research has yet to attend to the dimensions of

uncertainty that might be especially relevant for

tech ventures and hence might particularly affect

the extent of imitation within a subeld regard-

ing the acquisitions of tech ventures. Considering

that the value of a tech venture’s resources, capa-

bilities, and prospects is closely associated with

the venture’s activities in the technology domain,

technology-related dimensions of uncertainty might

be especially relevant for acquirers of tech ventures

(Anderson & Tushman, 2001; Folta,1998; Mitchell,

1988).

By focusing on technology-related uncertainty,

we expand the types of uncertainty that might mod-

erate imitative behavior and hence intensify the

positive association between the changes in acqui-

sition activity within a tech venture’s subeld and

future acquisition activity within the subeld. For

this purpose, we rst introduce exogenous techno-

logical uncertainty within the focal tech venture’s

industry subeld as a critical dimension of tech-

nological uncertainty. This uncertainty reects the

uncertainty in the technological landscape of the

focal venture’s subeld that is unaffected by the

venture’s ownactions (Folta, 1998; Mitchell, 1988).

Specically, we rst suggest that as the exogenous

technological uncertainty within the focal venture’s

subeld increases over time, there is a more posi-

tive association between the changes in the number

of acquisitions within the focal venture’s subeld,

or changes in the prominence of acquirers in these

acquisitions, and the venture’s own likelihood to be

acquired.

Second, we suggest that technological distance

between the focal venture and its acquirer is another

important boundary condition for the extent of imi-

tation in technology acquisitions. Techdistance rep-

resents the differences between the venture’sand its

acquirer’s technological resources and knowledge

bases (Fleming, 2001; Folta, 1998) and might limit

the acquirer’s ability to understand and assess the

target’sunderlying technological resources (Lane &

Lubatkin, 1998; Vasudeva & Anand, 2011). There-

fore, the technological distance between bidders

and targets is apt to be one of the most important fac-

tors that might contribute to the transaction-specic

uncertainty faced by acquirers of tech ventures. This

lack of technical information and understanding of

the target’s resources, in turn, might increase the

acquirer’s receptivity to the social information con-

veyed by other acquisitions within a subeld and

hence increase the likelihood of imitation. Consis-

tent with our hypotheses, we nd that positive asso-

ciations between the changes in the number of prior

acquisitions (or changes in acquirer prominence)

within a focal tech venture’s subeld and the tech

venture’sown likelihood to be acquired is more pro-

nounced when the tech distance between the focal

venture and its acquirer is high. While our ndings

are consistent with theoretical suggestions on imita-

tive behavior, the mergers and acquisitions (M&A)

activities we observed might be inuenced by a

number of alternative theoretical explanations that

we investigate empirically.

Inasmuch as our ndings are consistent with

social inuence and imitative behavior, our study

complements previous M&A-related studies con-

sidering how rms select alternative deal struc-

tures (e.g., Chari & Chang, 2009; Malhotra & Gaur,

2013) or organizational forms (e.g., Balakrishnan &

Koza, 1993; Vanhaverbeke, Duysters, & Noorder-

haven, 2002; Wang & Zajac, 2007) to deal with

technological uncertainty. We also build upon and

extend studies in corporate strategy and nance on

imitation in M&A decisions involving targets other

than privately held tech ventures that are subject

to different types of uncertainty (e.g., Chatterjee,

1986; Eckbo, 1983; Song & Walkling, 2000). More

broadly, our article also contributes to and extends

prior studies on entrepreneurship and research on

interrm transactions by presenting new theoreti-

cal arguments and ndings in line with the sug-

gestion that imitation can be an important means

by which potential exchange partners deal with

technology-related uncertainty they are facing when

transacting with tech ventures (e.g., Gaba & Ter-

laak, 2013).

Copyright © 2017 John Wiley & Sons, Ltd. Strat. Mgmt. J.,38: 2647–2665 (2017)

DOI: 10.1002/smj