1.1 Introduction: How Acquisitions Are Changing Our Lives
Mergers and acquisitions (M&As or acquisitions) represent a popular strategic choice companies rely upon to adapt to changing environments, reconfigure resources and capabilities, or renew business models (Capron & Mitchell, 2012). Despite frequently reported high failure rate (Risberg & Meglio, 2012), figures indicate that they continue to grow in frequency and volume involving mature and nascent industries as well as emerging and developed countries across the globe. In 2017, global M&As fell just short of previous years: Cross-border activity has once again been a key component and the technology sector has reached its highest annual deal count on Mergermarket (2018) record (since 2001). The year 2018, Bloomberg reports, has been the best start for overall global M&A activity, since 2000 (Forbes, 2018).
Mapping completed acquisitions has attracted scholarly interest over time. Scholars identify âM&A wavesâ according to peculiar financial, economic, or sociocultural bases (Alexandridis, Mavrovitis, & Travlos, 2011). Different peaks in the history of M&As have different foci. While in the 1960s and 1970s, diversification and the creation of conglomerates were common reasons for acquisitions (Schleifer & Vishny, 1990), in the late 1990s and early 2000s acquisitions were more horizontal and international in scope (Ăberg & Holtström, 2006). In a reconstruction of the seven merger waves in the time span 1895â2017, Park and Gould (2017) outline how US acquirers dominated the first three waves, while European and Japanese firms increasingly entered the international M&A arena from the fourth wave onward. Since the fifth wave, the diffusion of economic power across a broader range of countries has heightened opportunities for emerging multinational companies (EMNCs) to compete globally, and firms from emerging economiesâsuch as China, India, or the Arabian Gulf statesâhave become prominent players in the worldwide market for corporate control (Luo & Tung, 2007; Madhok & Keyhani, 2012; Nair, Demirbag, Mellahi, & Pillai, 2017). We can conclude that acquisitions have been and continue to be an important means for globalization.
The new scenario has several implications. The first is that the shape of global economy and the boundaries of entire industries on a worldwide scale have been significantly affected by acquisitions. However, acquisitionsâ consequences extend from economic to societal concerns. Not only do acquisitions influence the intensity of competition among companies and modify how they compete through innovative business models, they also affect individual lives of consumers, employees, or community members. Each of us is exposed to news about acquisitions on a daily basis. Any of us, at least once in a life, has been involved in an acquisition, as a customer, as an employee, as a relative or friend of, or as a member of a local community. Acquisitions are disruptive events in peoplesâ lives and the analyses about their impact on the salary level, the employment rate, and the living conditions of communities document these effects (cf. Daniels, 1993). Today, we can easily claim that we live with and by acquisitions.
The second implication is that new institutional settings have come to play a role in the global arena. An institutional setting can be understood as the intersection of social, legal, and economic factors (Beck & Levine, 2008). We contend that the institutional setting influences the dynamics of acquisition processes as well as the multiplicity of outcomes acquisitions produce. Despite the importance of institutional settings, âinstitutional theory has been remarkably absent from M&A researchâ (Ferreira, Santos, de Almeida, & Reus, 2014, p. 2556). This is an unfortunate circumstance as institutional theory (Tolbert & Zucker, 1999) could fruitfully illuminate how institutions influence the ways value is created and distributed through acquisitions (Maas, Heugens, & Reus, 2018), whether institutions allow executives and other stakeholders to engage in M&A activity for self-serving reasons (e.g., Deutsch, Keil, & Laamanen, 2007) or whether M&As are an efficient vehicle for diffusing proactive corporate social responsibility (CSR) practices throughout the network of subsidiaries of multinational companies (MNCs) (Roth & Morrison, 1992).
1.2 The Impact of Globalization on M&As
Acquisitions have largely contributed to making the world global. Companies crossing national boundaries to pursue acquisitions have played a central role in accelerating the globalization process. Yet, acquisition scholars have largely neglected to analyze the effects of globalization on acquisitions. The debate about globalization is lively among academics from different disciplinary domains. Scholars from international law (Kinley & Tadaki, 2004), politics (i.e., Cutler, 2001), anthropology (i.e., Appadurai, 2000), sociology (i.e. Giddens, 1990), economics (i.e., Dunning, 2005), or management (i.e., Scherer & Palazzo, 2011) have over time contributed to identify issues arising from such a process. Different conversations have been underway within different communities of scholars. Making a review of all those is beyond the aim and scope of this monograph. Still, we deem it important to identify and briefly analyze the opportunities and threats arising from this new state and discuss what the implications might be for the companies pursuing acquisitions.
According to Scherer and Palazzo (2011, p. 901), âGlobalization can be defined as a process of intensification of cross-border social interactions due to declining costs of connecting distant locations through communication and the transfer of capital, goods, and people.â They further contend that this process creates new opportunities and threats for companies as a consequence of increasing transnational interdependence among economic and social actors. Consequences extend beyond an intensified competition: That the world is globalized means that companies no longer operate within the comfort zone of national closed borders (Scherer & Palazzo, 2011): Neither are they affected by the constraints of national closed borders. As a result, where there used to be state monopolies, there are now liberalized and deregulated global markets. Obviously, these conditions have produced a multitude of effects in different spheres.
In the business domain, globalization has exacerbated competitive pressure companies face and pushed companies to cut costs and increase profitability to meet their investorsâ demand for higher returns. In parallel, globalization has also opened up new money-making opportunities by entering new markets or cutting cost opportunities by splitting their value chain and shifting activities to low-cost locations. Acquisitions represent an effective means to reap these benefits. Thus, acquisitions have favored globalization and vice versa.
In the political and social spheres, the portrait becomes more complex. On the global level, neither nation-states nor international institutions alone are able to sufficiently regulate the global economy and provide public goods on a global scale (Kaul, Conceição, Le Goulven, & Mendoza, 2003). The decline in governance capability of nation-states is partly compensated by the emergence of new forms of global governance above and beyond the single states. Global governance, seen as the process of defining and implementing global rules and providing global public goods, should be now conceived as a polycentric and multilateral process to which governments, international institutions, civil society groups, and companies contribute by identifying priorities, finding solutions, and allocating resources (Braithwaite & Drahos, 2000). Unlike national governance, global governance rests on voluntary contributions and weak or even absent enforcement mechanisms. Under these circumstances, public issues that once were covered by nation-state governance now fall under the discretion and responsibility of corporate managers. International organizations, civil society groups, and private businesses in cooperation with state agencies, or even without their support, have started to voluntarily contribute expertise and resources to fill gaps i...