Article by Prof. Tamar Almor, Dr. Shlomo Tarba, Dr. Avital Margalit, under the title:
Maturing, Technology-Based, Born-Global Companies: Surviving Through Mergers and Acquisitions
Cite article:
Almor, T., Tarba, S. Y., & Margalit, A. (2014). Maturing, technology-based, born-global companies: Surviving through mergers and acquisitions. Management International Review, 54(4), 421-444.
The article investigates a very special type of company, Israeli technology companies that have been around since the beginning of their journey in international markets, what is known in the literature as born-global companies, companies that are born with the intention of operating beyond the borders of the country. But what happens to them over time? Do they manage to survive? Do they grow? Do they remain independent? And what influences their survival?
Most studies on international companies focus on the initial stage of exporting or entering foreign markets, but they rarely examine what happens to those companies when they are more mature, when they have already gone through several years of international activity.
The aim of the study is to understand whether mergers and acquisitions (M&A) help these technology companies survive and develop throughout their first decade of existence.
The study was based on empirical data, that is, data collected from the actual activities of companies and not just wishes or theories. The researchers selected Israeli technology companies that were identified as born-global back in the 1990s. The companies' annual reports between 2000 and 2009 were examined, i.e. about 10 years of financial and operational data.
From the initial sample of 57 ICT companies: 40 companies survived as independent units until 2009, 28 of which made at least one acquisition of another company during the decade and a total of 110 acquisitions were made by these companies during this period.
The goal of the study was to understand whether making acquisitions or mergers helps companies remain independent and continue to grow, and indeed the study found some important insights.
Acquisitions help survive but not necessarily make more money - technology companies that increased their operations through acquisitions of other companies were more likely to remain independent over time. The reason is that acquisitions allowed them to expand their product portfolio, improve their capabilities and technology, and increase their sales, although this did not always increase profitability.
The study found that when companies merged with another company, it improved their situation, but especially if it happened before it made previous acquisitions. In other words, mergers may be beneficial, but they should come at the right time.
Most companies managed to continue operating until the end of the period examined, and yet they did not show significant growth in real growth indicators or shareholder equity.
The survival of young international companies is not only related to innovation or entering new markets but also to the ability to manage a sound business strategy, including acquisitions. Moreover, acquisitions do not always lead to higher profitability, but they provide growth in sales and technological assets, which strengthens the company's position in the market and extends its life.
The main recommendation of the study is that born-global companies should adopt a more aggressive mergers and acquisitions strategy if they really want to succeed and expand in the global market.
The study shows that often the way for international Israeli technology companies to survive and remain independent in the market is through acquisitions of other companies, even if this does not always increase their profits. Mergers and acquisitions strengthen their ability to offer better products and continue to grow, but they still need proper strategic planning to avoid creating a financial burden.