Introduction

Why do companies engage in acquisitions? Research frequently discusses mergers and acquisitions (henceforth, acquisitions) as a means to reach new markets and to develop new products and competences (Kaul 2012; Trautwein 1990; Walter and Barney 1990). Alternatively, acquisition motives include managers trying to gain personal or career-related benefits (Gomez-Mejia and Wiseman 1997; Grinstein and Hribar 2004). These motives indicate that acquisition research largely takes a company-centric perspective (cf. Kelly et al. 2003) focused on planning or risk taking (e.g. Chaffee 1985; Mintzberg 1973). Meanwhile, adaptation motives focus on environmental reasons for an acquisition (cf. Haleblian et al. 2009) that includes a company’s context in making decisions. This suggests a need to consider acquisitions as a strategic tool to respond to and adjust to changes in a company’s network, where adaptation refers to how a company’s strategy reconciles its ambition with contextual changes (Mintzberg 1973; Ronchi 1980). A network refers to groups of companies directly or indirectly connected by means of business arrangements (Anderson et al. 1994). The network approach constitutes a theoretical point of view that describes company interconnections as an influence on individual company decisions and outcomes (Ford and Håkansson 2006; Håkansson 1982). In focusing on acquisitions as an adaptation strategy that considers a company’s network, the chapter seeks to explain how one acquisition follows after another, or how acquisitions respond to change. Advantages of applying a network approach include explaining mutual adaptation and the spread of acquisitions to additional parties (Hallén et al. 1991; Havila and Salmi 2000).

The chapter contributes to previous research by developing an alternative explanation for why companies acquire. In general, studies that examine environmental reasons for acquisitions focus on how business connections between companies or individuals affect the choice of target (e.g. Finkelstein 1997; Pfeffer 1972) or refer to macro-economic changes as explanations for acquisition frequencies (e.g. Haleblian et al. 2009; Heeley et al. 2006). By comparison, this chapter focuses on customers, suppliers, and competitors that may also provide external explanations for acquisitions. It also contributes to research on adaptation by providing observed examples and alternative explanations to why acquisitions occur in waves (cf. Harford 2005).

Theory

A large stream of acquisition research has focused on motives. Depending on the theoretical lens and the perspective taken, explanations for acquisitions include market imperfection, hubris of managers, and revenue enhancement/cost reduction (Seth et al. 2000; Trautwein 1990). Efficiency goals to lower costs or market expansion to increase revenue by entering new markets are among the most frequently mentioned motives when an acquisition is announced (Kelly et al. 2003; Öberg 2004), and these motives are consistent with horizontal acquisitions of firms in the same or similar industries. Motives described by Carpenter and Sanders (2007) cover risk reduction from diversification, increased market power, and other synergy-related motives that reinforce an assumption of rationality underlying most acquisition motives. Meanwhile, hubris and empire-building motives suggest that managers plan acquisitions for their own benefit (Grinstein and Hribar 2004; Trautwein 1990).

Various motives have been linked to different trends (Weston and Weaver 2001) and also to different types of acquisitions. Prior to and during the 1970s, many firms used acquisitions to diversify. More recently, technology acquisitions offer access to unique resources or knowledge (Chen 2008; Graebner et al. 2010; Hennart and Park 1993; Prabhu, Chandy and Ellis 2005; Puranam et al. 2006). Additionally, an increase in international acquisitions suggests market-entry motives. Vertical acquisitions involve upstream acquisition to ensure the supply of raw materials and their quality, or downstream acquisitions to access customers or ensure the quality of a company’s distribution and service (Argyres 1996; Díez-Vial 2007). Table 2.1 summarizes different acquisition motives.

Again, a shared feature of the acquisition motives mentioned in most research is that they are company-centric, with limited attention paid to the context of the firm. Literature that refers to environmental reasons for acquisitions focus on two main areas: 1) how the choice of acquired party results from connections at a company level or contacts between individuals (Haunschild 1993; Pfeffer 1972), and 2) descriptions of macro-economic factors that affect the acquisition frequency (Matsusaka 1996). Neither of these environmental explanations considers adaptation to changes in a company’s network as a motive for acquisition.

Method

A case study methodology was used to examine an adaptation explanation for acquisitions based on changes in a firm’s network. A case study allows for capturing acquisitions and their context to consider connections between the different activities (Yin 1994). The chapter uses multiple cases with the intention to provide additional dimensions and comparison among the cases (Eisenhardt 1991). Three acquisition cases were selected based on how they describe adaptation to customers, suppliers, and competitors. They were taken from previous research conducted by the author over the past ten years in different projects on acquisitions, where the selection criteria were to find cases that illustrated adaptations to different parties. Conversational interviews were the main data-capturing method in the study. The interviews were performed with representatives of the acquirer, acquired party, and customers and suppliers to the focal firms. The interviewees included CEOs and financial, marketing, sales, and procurement managers, or they worked as users or maintenance staff of the companies.

Between 2003 and 2012 a total of 58 interviews were conducted (see Table 2.2). To provide a longitudinal perspective, some interviewees were approached again with a time lapse between the first and second interview. Based on the interviews’ informal character (McCracken 1988), they were adjusted for each interviewee and also involved the follow up of aspects mentioned during the interviews. Interviews covered, but were not limited to the following areas: general descriptions of the acquisition; why and when it was performed; integration and the outcome of it; and descriptions of different companies surrounding the firm and their mutual impact on the acquisition and its outcome. Interviews were complemented with secondary data, including: annual reports, newspaper items, and internal documentation (cf. Welch 2000). Secondary data provided a timeline of events for each acquisition, the verification of details, and a comparison of motives provided in press releases and those shared by interviewees (cf. Öberg 2004).

In the analysis procedure, the interviews and secondary data were used to produce case descriptions that were also approved and corrected by the interviewees. Direct quotations in the final case descriptions intend to highlight central items of the cases (Eisenhardt and Graebner 2007). Next, the interview material was searched for descriptions consistent with an adaptation strategy. These occurrences were coded and compared on a within-case basis (Pratt 2009). The codes represented how the adaptation was described, what parties it involved, and how it linked to the overall acquisition. This part of the analysis was performed in several cycles, moving between the empirical material and previous research, and also included the search for explanations of the adaptation and their relation to present theory (Dubois and Gadde 2002). Conflicting findings were either seen as results of differences in perspectives, or approached to find an explanation. As a final step, the different cases were compared to see whether the explanations of adaptation were linked to different stakeholders, or if shared reasons could be found. Adaptation was also challenged in this stage by other explanations of the acquisitions, in order to test its explanation value. This last point is discussed in the discussion section in terms of whether other motives may explain the acquisitions, and it is concluded how adaptation adds understanding beyond such motives.

Case studies

This section presents three case studies, each illustrating adaptation to customers, suppliers, and competitors, respectively.

Discussion

As shown in Table 2.3, the case studies support viewing acquisitions as a strategic tool to adapt to customers, suppliers, and competitors. Instead of completing acquisitions to meet changes for a single actor, the actions of customers, suppliers, or competitors contributed to an acquisition being made to respond to changes among networks of customers, suppliers, or competitors. In the case of EuroLifter’s acquisition of USLifter, several customers internationalized their businesses. AutoInternational’s acquisition was the consequence of how suppliers had increased their power through increased modularization and technological development. EuroLifter’s acquisition of MediterraneanTruck resulted from how EuroLifter’s main competitors in the European market had diversified into related product niches. Rather than seeing the acquisition as adaptation in a specific relationship (Hallén et al.1991), adaption through acquisition resulted from changes on a network level.

The cases also suggest that acquisitions resulted from trends in each party’s industry. For example, customers internationalized their business as other customers did; suppliers acquired other firms to acquire technology and scale, and manufacturers of material-handling acquired firms to offer competing products. Previously, acquisition trends have been described as acquisition waves (Harford 2005; Weston and Weaver 2001), indicating how acquisitions with a specific orientation appear in groups of several such acquisitions. However, acquisition waves have rarely considered the industry level (Haleblian et al. 2012). Research has also not considered acquisitions as leading to acquisitions among customers and suppliers. This suggests that adaptation to a firm’s network may provide a better understanding of observed acquisitions. To explore this idea, several questions are considered.

Could the studied acquisitions be explained by traditional company-centric motives? Looking at the three case studies, the motives coincide with company-centric explanations. EuroLifter’s acquisition of USLifter meant a geographical expansion and the strengthening of a market position (Chen 2008; Trautwein 1990). AutoInternational’s acquisition of Solution explains how new capabilities were sought by the acquirer (Ahuja and Katila 2001; Prabhu et al. 2005). EuroLifter’s acquisition of MediterraneanTruck indicates diversification as a motive (Chatterjee and Lubatkin 1990; Limmack 2003; Markides and Ittner 1994). In the associated press releases, reference was made to traditional motives (cf. Kelly et al. 2003; Öberg 2004), suggesting that the acquirers wanted to portray themselves as driving the acquisitions rather than simply adapting to change. This reinforces the importance of methodological choices in acquisition research (Meglio and Risberg 2010) and the advantage here of using case studies to identify adaptation as a motive.

What is behind acquisitions as an adaptive strategy? The cases describe adaptation as adjustments to respond to activities by customers, suppliers, and competitors. Instead of making adjustments based on their requests (cf. Hallén et al. 1991), acquisitions represent a way to deal with external change. However, acquisitions are not the only mode of change used (Öberg and Holtström 2006), and organic growth can also involve adaptation. Still, an adaptation corresponds to imitating a strategic intention of another party (cf. DiMaggio and Powell 1983; Ordanini et al. 2008). For example, meeting geographical expansion of customers with geographical expansion, as illustrated by EuroLifter’s acquisition of USLifter (cf. Meyer 2006) technological development and the need for new competences being met with the acquisition of new knowledge as illustrated by AutoInternational’s acquisition of Solution, and diversification into a related product niche being met with similar diversification by the acquirer, as illustrated in EuroLifter’s acquisition of MediterraneanTruck.

What does adaptation add to current research? Adaption indicates how acquisitions are embedded in the context of other firms (Granovetter 1985). A company acts as described by Lindblom (1959) in a complex context and reacts to occurring issues rather than masters the context. Adaptation creates a link to different strategic actions that go beyond company-centric explanations or planning modes (Chaffee 1985; Mintzberg 1973) and it reflects recent developments in strategy research (Castells 2000; Furrer et al. 2008; Gavetti et al. 2007; Hammer et al. 2012). By integrating a network approach, the complex context of a firm and choices to pursue acquisitions can be explained by considering other stakeholder activities (cf. Chaffee 1985). In summary, adaptation helps to explain why individual acquisitions occur and also why they frequently occur among companies in an industry.

What patterns of adaptation are seen? Previous research has described the spread of change among business partners (Havila and Salmi 2000), using supply chain (Hertz 1998) or random patterns (Dahlin et al. 2005), and sequences of acquisitions (Shi and Prescott 2011). The cases studied indicate adaptation to upstream (EuroLifter’s acquisition of USLifter), downstream (AutoInternational’s acquisition of Solution), or competing parties (EuroLifter’s acquisition of MediterraneanTruck), and they represent supply-chain rather than random patterns (cf. Dahlin et al. 2005). In comparison to Hertz (1998) and Havila and Salmi (2000), the firms in the case do not continue to add new parties upstream or downstream in the supply chain. Instead, the cases suggest acquisition according to the following patterns: 1) previous activities by the acquiring firm or companies at the same supply chain position lead to strategic changes among suppliers or customers that the acquiring firm adapts to, or 2) activities by firms in either an upstream or downstream supply chain position that parallels parties at the same supply chain position explain the acquisition. Adaptation as a response to competitors is illustrated in EuroLifter’s acquisition of MediterraneanTruck, while it also included adaptation to customers. The case of AutoInternational’s acquisition responded to growing supplier power due to outsourcing and points to how companies may have created the situation they later adapt to.

How can the adaption be explained? Though there are multiple explanations, the cases suggest that the strategic intention (reach a new geographical market, add knowledge, or diversify) involved imitation by the acquirer, which may involve grasping opportunities or defending current positions (copying or coping). EuroLifter’s acquisition of USLifter indicates that it copied its customers’ globalization as a voluntary, strategic movement, where adaptation reflects a firm regarding itself as a follower rather than a leader of strategic activities (Haleblian et al. 2012; Mintzberg 1973). The other two cases suggest how the acquirer performed the acquisition to defend its position (Johanson and Mattsson 1992), either driven by how the party that was adapted to challenged it, or based on the indirect adaptation. This suggests that adaptation involves coping strategy, or responding to threats to a firm’s continuity; of customer losses; of competitors’ actions; of supplier power; and anticipated threats to access to resources.

Conclusion

This chapter describes and discusses acquisitions as an adaptation strategy, with a focus on adaptation to changes in a firm’s network. The chapter extends literature on sequences of acquisitions and patterns of change (Shi and Prescott 2011) through seeking their explanation and describing adaptation to network parties, and it offers implications for management research and practice.