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Beyond a One-Size-Fits-All Explanation for Reacquisitions – A Cluster-based Analysis of Reacquisition Motives and Their Influence on the Involved Firms

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Abstract

A reacquisition is an interesting case in mergers and acquisitions (M&A) research, because it may constitute the second of two contradictory events, the first being the initial divestiture. The current understanding of reacquisitions is limited, even though research has shown them to be relevant. This study examines 14 cases of reacquisitions to determine their motivations and their influence on the firms involved. We identify four different clusters of reacquisitions, each with different motivations and implications for the participating firms, indicating the importance of fine-grained analyses when evaluating these events. This study contributes to research on reacquisitions, the interrelation between transactions, and corporate venturing.

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Notes

  1. The application of a template analysis allowed us to include some deductive elements, but most of the theory was developed inductively.

  2. We also use this term for cases where majority ownership was lost in the divestiture. Technically, these companies are not parent companies between the divestiture and the reacquisition.

  3. To simplify, we do not differentiate between companies according to whether they are currently the subsidiary of a parent company (before divestiture and after reacquisition) or the subsidiary of the investing company (between divestiture and reacquisition in case of a change of majority ownership).

  4. One additional interview was conducted with the CEO of a parent company involved in one of the 14 cases. However, the interview material was not approved for publication owing to confidentiality issues. However, the insights from this interview were completely in line with our other informants.

  5. Additionally, transaction volumes ranged from a few million USD up to several hundred million USD (transaction volumes not publicly available for all transactions – company values not mentioned for confidentiality reasons).

  6. This includes 50:50 joint ventures, because the parent company in such cases still has substantial control over the subsidiary, and no other party has gained majority ownership.

  7. We do not aim to verify this kind of theory with our analysis, but had to validate whether the occurrence of the divestitures and reacquisitions in our sample resulted from such strategic considerations.

  8. Please note that we are not saying anything about the underlying sources of strategy change, such as a change in the CEO position (e. g., Westphal and Fredrickson 2001) or board characteristics (e. g., Goodstein et al. 1994).

  9. In citations of interviews and press articles, the name of the parent company will always be rendered as “company P,” the name of the subsidiary as “company S,” and the name of the investor as “company I.”.

  10. This is an interesting result, especially in light of social desirability (Nederhof 1985), which can cause iinterviewees to avoid admitting mistakes that occurred within their companies. The two cases where this issue was mentioned show that mistakes in divestitures are relevant aspects of reacquisitions.

  11. Propositions are always developed from a mixture of case evidence, previous research, and standalone logic. For the previous propositions, tables with representative informant quotes have been presented; for the propositions on reacquisitions’ influence on the firms, representative quotes are presented within the textual passages, because inferences must be drawn mainly from a combination of informant statements and interpretations and the application of the researchers’ logic. Informants were reluctant to explicitly describe the impact of these transactions on their firms.

  12. Statements concerning a reacquisition’s effect on a company always refer to the impact on actual company value. We do not include the potential delays in market price adjustments made to reflect those changes, or potential differences between market reactions and actual performance.

  13. We consider neutral signal events to mean that the event can be either positive or negative, depending on the specific situation.

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Acknowledgements

This research was supported by the German Research Foundation through the Collaborative Research Center 649 “Economic Risk”, Humboldt-Universität zu Berlin.

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  1. Chair for Strategic Leadership and Global Management, H92, Technische Universität Berlin, Straße des 17. Juni 135, 10623, Berlin, Germany

    Benjamin Dietz & Dodo zu Knyphausen-Aufseß

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  1. Benjamin Dietz
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  2. Dodo zu Knyphausen-Aufseß
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Correspondence to Dodo zu Knyphausen-Aufseß.

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Dietz, B., zu Knyphausen-Aufseß, D. Beyond a One-Size-Fits-All Explanation for Reacquisitions – A Cluster-based Analysis of Reacquisition Motives and Their Influence on the Involved Firms. Schmalenbach Bus Rev 18, 1–28 (2017). https://doi.org/10.1007/s41464-016-0023-6

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