The profitability of high-tech acquisitions and the effect of acquired patents on returns

This paper investigates the post-acquisition abnormal returns of 164 M&A’s in the U.S. high-technology industry. The industry’s high-risk, high-growth and innovative nature give reason for takeovers to be profitable. However, the results show that the expected return without a merger is 51.3% higher than the realized return in the five years after the announcement date. This means that shareholders do not profit from high-tech M&A’s. To test the e˙ect of acquiring innovative firms on returns, the number of acquired patents are examined. After controlling for the method of payment, mode of payment, market-to-book ratio and firm size, the results indicate that the number of acquired patents does not have a significant e˙ect. The abnormal returns di˙ers largely among industries. Also after controlling for the industry e˙ects, the role of patents remains non-existing. The conclusion is that high-tech M&A’s are no exception to the negative abnormal returns generally found in research (King, Dalton, Daily, & Covin, 2004). Long-term investors should be critical to high-tech takeovers even when the acquired firm is considered rela-tively innovative.