Skip to main content
SpringerLink
Log in

Completing the technology transfer process: M&As of science-based IPOs

  • Published:
Small Business Economics Aims and scope Submit manuscript

Abstract

This paper investigates the valuation and merger and acquisition (M&A) dynamics of the population of 254 biotech firms that went public in Europe between 1990 and 2009. Among these, we identify a high proportion (40%) of firms affiliated with a university or another public research organization. After controlling for intellectual capital and other possible determinants, we find that affiliation with a university is recognized as beneficial by investors. This affiliation enhances the valuation of the firms and the probability of being targeted in subsequent M&As, particularly in cross-border deals. We conclude that following the initial public offering acquisitions by incumbent firms are mechanisms to finalize the technology transfer process started in a research institute. Our findings allow us to derive implications for venture investors, academic entrepreneurs, university managers, and policymakers.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1

Similar content being viewed by others

Notes

  1. An alternative specification that limits the analysis to the cases of companies that were officially born as university or academic spin-offs has been tested. Results are confirmed at a lower level of significance, due to the smaller number of cases available.

  2. EURIPO (www.euripo.eu) is a database of European IPOs built and managed by Universoft, a spin-off company of the University of Bergamo. See Cogliati et al. (2011) for a description of the database. The industry classification is the official one adopted by the European stock exchanges, namely, the Industry Classification Benchmark (ICB). To identify biotech companies, we refer to code 4573, which is Healthcare (45)—Pharmaceuticals & Biotechnology (7)—Biotechnology (3). Our definition, and as a result our sample, differs from other, broader definitions of biotechnology including, for example, firms conducting agriculture research.

  3. Subsection 4.4 is dedicated to a comparison between countries.

  4. Economic theory assumes that the difference between market value and book value is the present value of a company’s future abnormal earnings, the latter resulting from either monopoly power or innovation. The Q value for a firm is defined as the ratio of the market value of the outstanding financial claims on the firm to the current replacement cost of the firm’s assets. This ratio has been accepted as an important measure for firm valuation and used to explain a wide variety of economic phenomena.

  5. This means an average of 1.79 M&As per IPO-firm, if we consider only the 148 firms involved in at least one deal. The data source on M&A deals was the Thomson One Banker Deals database, which relies on other sources, such as stock exchange commissions, trade publications, law firms, and investment bank surveys. Our sample firms could be targeted in several M&A transactions, because M&As do not refer exclusively to the combination of two companies to form a new company. The raw data were checked to eliminate double-counting of transactions. Deals were identified by the cut-off ownership levels for mandatory disclosures required by national laws. In all of the jurisdictions evaluated, there was a formal obligation that required major shareholders to disclose their holdings in a company.

  6. We considered the number of patents to which the firm had exclusive rights at the date of public offering, as published in the prospectus. Thus, the measure captures not only patents issued directly to the firm, but also patents acquired through arrangements with other firms. When missing, the patent variable was completed by measuring the number of patents as reported by the US and by the European Patent Office issued to the firm up to the date of the IPO.

  7. The upper echelon consists of board members and top managers. The benefits of having prestigious members in both categories at the time of IPO registration are well known. Executives with lustrous credentials and experience may be more capable of leading a company through the IPO transition (Fischer and Pollock 2004), and prestigious outside directors can reassure markets that the firm will be able to secure scarce resources. In the regression analysis, we controlled for the relational and educational capital of the upper echelon (advisory role) as well as board-independence and corporate governance mechanisms (agency role). Relying on the definition of upper echelons allows us to better account for differences in the design and functioning of top management teams across national borders (Glunk et al. 2001).

  8. Similar to previous studies, we measured Tobin’s Q as the ratio of market value of assets to the book value of assets, where the market value is calculated as the sum of the book value of assets and the market value of common stock less the book value of common stock. However, we performed the regression analysis by using alternative measures as well (e.g., the ratio of the market value of equity over the book value of equity or the ratio of market value of equity over sales), but the results did not change significantly.

  9. Results are robust to alternative specifications where we used as dependent variable either the number of cross-border deals, or the number of cross-border deals as target, or the relative number of cross-border deals on the total number of deals.

References

  • Arthurs, J. D., Busenitz, L. W., Hoskisson, R. E., & Johnson, R. A. (2009). Firm-specific human capital and governance in IPO firms: Addressing agency and resource dependence concerns. Entrepreneurship Theory and Practice, 33(4), 845–865.

    Article  Google Scholar 

  • Audretsch, D. B., Hulsbeck, M., & Lehmann, E. E. (2011). Regional competitiveness, university spillovers, and entrepreneurial activity. Small Business Economics (forthcoming).

  • Audretsch, D. B., & Lehmann, E. E. (2006). Entrepreneurial access and absorption of knowledge spillovers: Strategic board and managerial composition for competitive advantage. Journal of Small Business Management, 44(2), 155–166.

    Article  Google Scholar 

  • Audretsch, D. B., Lehmann, E. E., & Warning, S. (2005). University spillovers and new firm location. Research Policy, 34(7), 1113–1122.

    Article  Google Scholar 

  • Bonardo, D., Paleari, S., & Vismara, S. (2010). The M&A dynamics of European science-based entrepreneurial firms. Journal of Technology Transfer, 35(1), 141–180.

    Article  Google Scholar 

  • Bonardo, D., Paleari, S., & Vismara, S. (2011). Valuing university spin-offs: The effects of academic affiliation on IPO performance. Entrepreneurship: Theory and Practice, 35(4), 755–776.

    Article  Google Scholar 

  • Booth, J. R., & Smith, R. (1986). Capital raising underwriting and the certification hypothesis. Journal of Financial Economics, 15, 261–281.

    Article  Google Scholar 

  • Braun, T. V., Lehmann, E. E., & Schwerdtfeger, M. T. (2011). The stock market evaluation of IPO firm takeovers. Working paper. doi:10.2139/ssrn.1803358.

  • Carter, R. B., & Manaster, S. (1990). Initial public offerings and underwriter reputation. Journal of Finance, 65, 1045–1067.

    Article  Google Scholar 

  • Certo, S. T. (2003). Influencing initial public offering investors with prestige: Signaling with board structures. Academy of Management Review, 28, 432–446.

    Google Scholar 

  • Chen, G., Hambrick, D. C., & Pollock, T. G. (2008). Puttin’ on the ritz: Pre-IPO enlistment of prestigious affiliates as deadline-induced remediation. Academy of Management Journal, 51, 954–975.

    Article  Google Scholar 

  • Clarysee, B., Wright, M., & Van de Velde, E. (2011). Entrepreneurial origin, technology endowments and the growth of spin-off companies. Journal of Management Studies, 48(6), 1420–1442.

    Article  Google Scholar 

  • Coff, R. W. (1999). How buyers cope with uncertainty when acquiring firms in knowledge-intensive industries: Caveat emptor. Organization Science, 10, 144–161.

    Article  Google Scholar 

  • Cogliati, G. M., Paleari, S., & Vismara, S. (2011). IPO pricing: Growth rates implied in offer prices. Annals of Finance, 7(1), 53–82.

    Article  Google Scholar 

  • Colombo, M., Mustar, P., & Wright, M. (2010). Dynamics of science-based entrepreneurship. Journal of Technology Transfer, 35(1), 1–15.

    Article  Google Scholar 

  • Eun, C. S., Kolodny, R., & Scheraga, C. (1996). Cross-border acquisitions and shareholder wealth: Test of the synergy and internalization hypothesis. Journal of Banking & Finance, 20, 1559–1582.

    Article  Google Scholar 

  • European Commission. (2005). Improving opportunities for Initial Public Offerings on growth stock markets in Europe. Report from the workshop held on 24 May 2005 in Brussels, Directorate-General for Enterprise and Industry.

  • Filatotchev, I., Toms, S., & Wright, M. (2006). The firm’s strategic dynamics and corporate governance lifecycle. International Journal of Managerial Finance, 2(4), 256–279.

    Article  Google Scholar 

  • Fischer, H. M., & Pollock, T. G. (2004). Effects of social capital and power on surviving transformational change: The case of initial public offerings. Academy of Management Journal, 47, 463–481.

    Article  Google Scholar 

  • Glunk, U., Heijltjes, M. G., & Olie, R. (2001). Design characteristics and functioning of top management teams in Europe. European Management Journal, 19(3), 291–300.

    Article  Google Scholar 

  • Granstrand, O., & Sjölander, S. (1990). The acquisition of technology and small firms by large firms. Journal of Economic Behavior & Organization, 13(3), 367–386.

    Article  Google Scholar 

  • Gulati, R., Nohria, N., & Zaheer, A. (2000). Strategic networks. Strategic Management Journal, 21, 203–215.

    Article  Google Scholar 

  • Hand, J. R. M. (2007). Determinants of the round-to-round returns to pre-IPO venture capital investments in U.S. biotechnology companies. Journal of Business Venturing, 22(1), 1–28.

    Article  Google Scholar 

  • Hess, A. M., & Rothaermel, F. T. (2011). When are assets complementary? Star scientists, strategic alliances and innovation in the pharmaceutical industry. Strategic Management Journal, 32(8), 895–909.

    Article  Google Scholar 

  • Higgins, M. C., & Gulati, R. (2006). Stacking the deck: The effect of upper echelon affiliations for entrepreneurial firms. Strategic Management Journal, 27, 1–26.

    Article  Google Scholar 

  • Hovakimian, A., & Hutton, I. (2010). Merger-motivated IPOs. Financial Management, 39, 1547–1573.

    Article  Google Scholar 

  • Hsieh, J., Lyandres, E., & Zhdanov, A. (2011). A theory of merger-driven IPOs. Journal of Financial and Quantitative Analysis, 46(5), 1367–1405.

    Google Scholar 

  • Inkpen, A., Sundaram, A. K., & Rockwood, K. (2000). Cross-border acquisitions of US technology assets. California Management Review, 42(3), 50–67.

    Article  Google Scholar 

  • Johnson, J. M., & Regets, M. (1998). International mobility of scientists and engineers to the United States—Brain drain or brain circulation? Arlington, VA: National Science Foundation, pp. 98–316.

  • Knockaert, M., Ucbasaran, D., Wright, M., & Clarysse, B. (2011). The relationship between knowledge transfer, top management team composition and performance: The case of science based entrepreneurial firms. Entrepreneurship, Theory and Practice, 35(4), 777–803.

    Article  Google Scholar 

  • Lehmann, E. E., Braun, T. V., & Krispin, S. (2011). Entrepreneurial human capital, complementary assets, and takeover probability. Journal of Technology Transfer (forthcoming).

  • Lichtenberg, F. R., & Siegel, D. (1989). The effects of leveraged buyouts on productivity and related aspects on firms’ behaviour. Journal of Financial Economics, 27, 165–194.

    Article  Google Scholar 

  • Megginson, W. L., & Weiss, K. (1991). Venture capitalist certification in initial public offerings. Journal of Finance, 46, 879–903.

    Article  Google Scholar 

  • Mustar, P., & Wright, M. (2010). Convergence or path dependency in policies to foster the creation of university spin-off firms? A comparison of France and the United Kingdom. Journal of Technology Transfer, 35(1), 42–65.

    Article  Google Scholar 

  • Nelson, T. (2003). The persistence of founder influence: Management, ownership, and performance effects at initial public offering. Strategic Management Journal, 24, 707–724.

    Article  Google Scholar 

  • O’ Shea, R. P., Chugh, H., & Allen, T. J. (2008). Determinants and consequences of university spin-off activity: A conceptual framework. Journal of Technology Transfer, 33, 653–666.

    Article  Google Scholar 

  • Pollock, T. G., Chen, G., Jackson, E. M., & Hambrick, D. C. (2010). How much prestige is enough? Assessing the value of multiple types of high-status affiliates for young firms. Journal of Business Venturing, 25(1), 6–23.

    Article  Google Scholar 

  • Pollock, T. G., & Gulati, R. (2007). Standing out from the crowd: the visibility-enhancing effects of IPO-related signals on alliance formation by entrepreneurial firms. Strategic Organization, 5, 339–374.

    Article  Google Scholar 

  • Powell, W. W., Koput, K. W., & Smith-Doerr, L. (1996). Interorganizational collaboration and the locus of innovation: Networks of learning in biotechnology. Administrative Science Quarterly, 41, 116–145.

    Article  Google Scholar 

  • Rao, H. (1994). The social construction of reputation: Certification contests, legitimation, and the survival of organizations in the American automobile industry: 1895–1912. Strategic Management Journal, 15, 29–44.

    Article  Google Scholar 

  • Schmidt, T., & Sofka, W. (2009). Liability of foreignness as a barrier to knowledge spillovers: Lost in translation? Journal of International Management, 15(4), 460–474.

    Article  Google Scholar 

  • Shane, S. (2004). Encouraging university entrepreneurship. The effect of the Bayh-Dole Act on university patenting in the United States. Journal of Business Venturing, 19, 127–151.

    Article  Google Scholar 

  • Shen, J. C., & Reuer, J. J. (2005). Adverse selection in acquisitions of small manufacturing firms: A comparison of private and public targets. Small Business Economics, 24(4), 393–407.

    Article  Google Scholar 

  • Stuart, T. E., Hoang, H., & Hybels, R. C. (1999). Inter organizational endorsements and the performance of entrepreneurial ventures. Administrative Science Quarterly, 44, 315–349.

    Article  Google Scholar 

  • Teece, D. J. (1986). Profiting from technological innovation. Research Policy, 15(6), 285–305.

    Article  Google Scholar 

  • Vismara, S., Paleari, S., & Ritter, J. R. (2011). Europe’s second markets for small companies. European Financial Management (forthcoming).

  • Wright, M., Lockett, A., Clarysse, B., & Binks, M. (2006). University spin-out companies and venture capital. Research Policy, 35, 481–501.

    Article  Google Scholar 

  • Zaheer, S. (1995). Overcoming the liability of foreignness. Academy of Management Journal, 38, 341–363.

    Article  Google Scholar 

  • Zhang, J. (2009). The performance of university spin-offs: An exploratory analysis using venture capital data. Journal of Technology Transfer, 34, 255–285.

    Article  Google Scholar 

  • Zheng, Y., Liu, J., & George, G. (2010). The dynamic impact of innovative capability and inter-firm network on firm valuation: A longitudinal study of biotechnology start-ups. Journal of Business Venturing, 25(6), 593–609.

    Article  Google Scholar 

Download references

Acknowledgments

We have benefited from discussions with Massimo Colombo, Erik Lehmann, and Jay Ritter, and with colleagues at Bocconi University, University of Bergamo, and University of Padua, that lead us in particular to better develop the theoretical framework of the paper. We would also like to thank participants at the XX AiIG conference in Udine and at the Technology Transfer Society (T2S) conference in Greensboro.

Author information

Authors and Affiliations

  1. Department of Economics and Technology Management, University of Bergamo and CISAlpino Institute for Comparative Studies in Europe (CCSE), Viale Marconi, 5, 24044, Dalmine, BG, Italy

    Michele Meoli, Stefano Paleari & Silvio Vismara

Authors
  1. Michele Meoli
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Stefano Paleari
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Silvio Vismara
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Silvio Vismara.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Meoli, M., Paleari, S. & Vismara, S. Completing the technology transfer process: M&As of science-based IPOs. Small Bus Econ 40, 227–248 (2013). https://doi.org/10.1007/s11187-012-9416-1

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11187-012-9416-1

Keywords

JEL Classifications

Search

Navigation