European market integration through technology-driven M&As

Abstract

Merger and Acquisitions (M&As) have been an important tool for reorganizing the European market since the establishment of European Economic and Monetary Union. This article suggests that European integration helped and encouraged European firms to source technology across national borders in Europe, establishing European innovative firms. The figures confirm that, once barriers impeding the free movement of capital, goods and labour had fallen, European firms used M&As intensively to enter foreign European markets. Enhancing technology competencies is found to be one of the main motives for cross-border acquisitions in the 1990s but is not a factor in domestic acquisitions over the same period.

Acknowledgements

The authors are indebted to Rene Belderbos, Jo van Biesebroeck, Joerg Breitung, Bruno Cassiman, Joachim Grammig, Bronwyn H. Hall, Nancy Huyghebaert, Stijn Kelchtermans, Bart Leten, Georg Licht, Monika Schnitzer, Konrad Stahl, Frank Verboven and Reinhilde Veugelers for helpful comments. Further, we acknowledge comments made at the annual meeting of the Schumpeter Conference 2006, the EARIE 2006, the ESSID 2006, and the Second INIR Doctoral Workshop. We thank Thorsten Doherr (ZEW) for providing his search engine for the data merge and Achim Schmillen for data processing. Katrin Hussinger gratefully acknowledges financial support under the grant KUL – OT/04/07A. This article evolved from a research project supported by the Deutsche Bundesbank. This article represents the authors’ personal opinions and does not necessarily reflect the views of the Bundesbank.

Notes

¹ Giuri et al. (2006) find that 20% of the patent applications at the European Patent Office (EPO) are filed to block competitors.

² The Amadeus database contains financial information on public and private companies in 41 European countries.

³ Intangible assets are defined by Thomson SDC Platinum as: value of assets having no physical existence, yet having substantial value to the firm, including goodwill, patents, trademarks, copyrights, franchises and costs in excess of net book value of businesses acquired, as of the date of the most recent financial information prior to the announcement of the transaction.

⁴ The share is even larger if we account for M&As between European and non-European firms.

⁵ Most data is from the OECD. However, tax information is taken from the European Commission (2005). For Switzerland, Norway and Greece, tax data is provided by Chris Edwards of the Cato Institute, based on Klynveld Peat Marwick Goerdeler (KPMG) data. http://www.cato.org/research/fiscal_policy/facts/tax_charts.html.

⁶ For example, a post-merger increase in R&D can indicate duplicated research efforts in the integration phase or exploitation of synergies; and decreases in post-merger R&D can indicate an efficiency or a market power effect. In addition, those effects are transitory and it is even more difficult to identify long-term effects of M&As.

⁷ Harrison (2006) uses a similar model to investigate hospital merger formation.

⁸ The assets and characteristics of the acquiring firm cancel each other out through the econometric implementation of the model.

⁹ Hall (1988b) investigates how the size of the control group affects the outcome of conditional logit models. She finds that an increase in the number of observations from 7 to 50 leads to an efficiency gain of about 30% based on a comparison of the SEs.

¹⁰ As the number of public limited companies per country provided by the Amadeus database does not match the stock exchange statistics provided by the World Federation of Exchanges, we put the restriction on our sampling routine to randomly draw a percentage of firms from every country according to the stock exchanges’ overall figures.

¹¹ We also estimated a nested logit model as an additional robustness check. These results were very similar.