Over the last decades, a large number of firms have undertaken mergers and acquisitions (M&As) to create synergies through increased production efficiency, increased market power, and quality improvements. Moreover, we have also recently witnessed that an increasing number of firms acquire information technology (IT) firms to create synergies from the customer side as well as the production side. In this study, we examine the post-merger risk of the acquiring firm, measured as its return volatility when IT firms are acquired, and seek to understand the dynamics surrounding M&A transactions. We also identify the conditions under which acquiring firms can mitigate the risks resulting from M&A transactions. We find that a strong run-up in risk occurs before M&A transactions are initiated, but this risk begins to decline over the post-merger years. However, we expect that post-merger risks tend to persist when firms seek M&A transactions with a customer-side motive, whereas this does not occur with a production-side motive. Moreover, we expect to find the conditions under which a firm can mitigate risk from the acquisition of IT firms contingent on its M&A motives.
Chang, Young Bong and Cho, Wooje, "The Acquisitions of Information Technology Firms by M&A Intents: An Empirical Analysis" (2015). PACIS 2015 Proceedings. 178.