Transcending Technological Innovation: The Impact of Acquisitions on Entrepreneurial Technical Organizations

Technology firms with substantial cash reserves acquire smaller entrepreneurial firms for diversification. In 2006, 3 large firms acquired 28 organizations, with the combined deals exceeding $4.7 billion. The problem addressed in this study is that new start-up companies with innovative ideas may not mature when they are acquired by larger companies and do not fully articulate potential industry-transcending innovation. This is important because the unsuccessful integration of an acquisition can dismantle innovation and compromises economic inventiveness. Drawing from the disruptive innovation and the resource-based theories, the purpose of the quasi-experimental study was to examine the impact of acquisition by larger public technological organizations of smaller start-up innovative entrepreneurial organizations on patent generation, stock price trend, and stakeholder retention. The research questions in this study were designed to statistically test pre/post changes in these key innovation performance factors before and after an acquisition. Historical data on 71 acquisitions by 10 acquiring firms were gathered related to number of patents generated, stock price trends, and stakeholder retention. Paired t tests were used to confirm that there were significantly fewer patents and patents per year generated, and significantly fewer stakeholders retained after acquisition. Stock price fluctuation was examined using a cumulative abnormal return categorization approach that indicated only 31% of the acquired companies realized gains that reached the a priori threshold of significance. The results of this study could create positive social change through the development of business acquisition strategies that promote innovation, resulting in economic prosperity for the United States