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Valuing technological synergies in mergers

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  • Li, Shi
  • Ang, James S.
  • Wu, Chaopeng
  • Yang, Shijie

Abstract

Technological synergy in mergers and acquisitions (M&As) is achieved when there is an increase in value generated by combining the stock of complementary technologies of acquirers and targets, as well as utilizing target’s patents to initiate or defend lawsuits against competitors. Using U.S. patent data, we provide quantitative measures of these two sources of technological synergy. We find that these measures of technological synergy are important considerations of acquiring firms and capital market in valuing target firms’ innovative assets, as the measures are positive determinants of merger premium and total synergy gain. The expected total gains of acquirers’ and targets’ shareholders from technological synergy decrease with the difficulties of post-merger integration as proxied by geographical distance between acquirer and target. Our technological synergy measures are also good predictors of post-merger realized synergy, i.e., increase in patent outputs in the overlapped technology classes and market share.

Suggested Citation

  • Li, Shi & Ang, James S. & Wu, Chaopeng & Yang, Shijie, 2021. "Valuing technological synergies in mergers," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    • Handle: RePEc:eee:ecofin:v:58:y:2021:i:c:s1062940821000887
    DOI: 10.1016/j.najef.2021.101464
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    More about this item

    Keywords

    Mergers and acquisitions; Technological synergy; Merger premium; Synergy gain; Innovation;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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