“Master Thesis U.S.E.

"The Impact of Mergers and Acquisitions on Patent

Activity in the Tech Sector"

Matteo Vannoni
Student Number:
Master in International Management

Abstract
This paper investigates the impact of mergers and acquisitions (M&A) on patent activity in the tech
sector, specifically focusing on how these corporate actions affect the innovative output of acquired
ventures. The main research question addressed is: "How do mergers and acquisitions by large tech
companies affect the innovative output of acquired ventures in the tech sector?" To approach this
question, the study utilizes data on patent filings and citations before and after acquisitions, applying
statistical analyses including paired and two-sample t-tests. The primary finding indicates a significant
increase in the number of patents post-acquisition, suggesting that M&A activities can enhance
patenting activity. However, the impact on patent citations, a measure of innovation quality, shows
mixed results

JEL-codes: O31, G34 and C12

Keywords: M&A, Big Tech, Patent Analysis and Citation Metrics

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 Table of content
1. Introduction....................................................................................................................4
2. Literature Review..........................................................................................................6
2.1 Patent Citations as a Measure of Innovation............................................................7
3. Theoretical Framework..................................................................................................9
3.1 Hypothesis 1 (H1) “There is no significant difference in the number of patent
citations for acquired ventures before and after the acquisition”...................................9
3.2 Hypothesis 2 (H2): “There is no significant difference in the number of patents
filed by acquired ventures before and after the acquisition”........................................10
3.3 Hypothesis 3 (H3): “There is no significant difference in the change in patent
citations between ventures acquired by firms in the same industry and those acquired
by firms in different industries post-acquisition”.........................................................11
3.4 Hypothesis 4 (H4): There is no significant difference in the change in the number
of patents filed between ventures acquired by firms in the same industry and those
acquired by firms in different industries post-acquisition............................................12
4. Empirical Strategy.......................................................................................................14
4.1 Data collection........................................................................................................15
5. Analysis and Findings..................................................................................................17
5.1 Analysis of Hypothesis 1 (H1)...............................................................................17
5.2 Analysis of Hypothesis 2 (H2)...............................................................................18
5.3 Analysis of Hypothesis 3 (H3)...............................................................................19
5.4 Analysis of Hypothesis 4 (H4)...............................................................................20
6. Discussion and Conclusion.......................................................................................22
6.1 Overview of Findings.............................................................................................22
6.2 Limitations of the Analysis.....................................................................................23
6.3 Suggestions for Further Research...........................................................................24
7. References.................................................................................................................26

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 1. Introduction

Ventures are crucial to economic growth, catalysing innovation through agility and creative thinking,
which in turn fosters job creation and competitive markets. Their unique approach to solving problems
and leveraging cutting-edge technologies enables them to disrupt traditional industries and introduce
groundbreaking products and services (Decker et al., 2014). Nevertheless, the trajectory of many
successful ventures does not lead to them becoming large, independent entities due to their early
acquisition by more established corporations. Such acquisitions have become commonplace among
major American companies, with hundreds of ventures absorbed over the past decade (Kim, 2020).
In fact, according to Prado and Bauer (2022) over the last decade “Big Techs” Companies such as
Amazon, Apple, Facebook (Meta), Google (Alphabet), and Microsoft have collectively acquired more
than 800 ventures in their early stages of development.
This trend has not gone unnoticed by regulators. In 2020, the Federal Trade Commission (FTC)
announced an inquiry into several high-profile startup acquisitions and filed lawsuits against two large
incumbents, Google and Facebook. Following this, in 2021, Congress introduced the bipartisan
Platform Competition and Opportunity Act, which aims to prohibit acquisitions by certain large
technology platforms, unless these firms can show that their acquisitions do not involve absorbing a
company that is a direct, emerging, or possible competitor, nor serve to strengthen or preserve their
dominance in the market. These actions highlight the growing worry that such acquisitions could
interfere with competition and innovation within the tech sector (Zakrzewski, 2021).
Many scholars define this phenomenon as “Killer acquisition”, term created by Cunningham et al.
(2021), to describe the strategic practice observed particularly in the pharmaceutical sector, where
larger firms acquire (“kill”) smaller, innovative competitors primarily to neutralize potential threats to
their market dominance rather than to cultivate the acquired firms' innovations.

There have been lots of studies on the effect of M&A activities in economic grown and innovative
output, however, a focused investigation into their impact on the innovative output of acquired startups
remains scarce. Research such as that by De Man and Duysters (2005) has provided foundational
insights into the broader effects of M&A on innovation, emphasizing the need for further exploration
into specific governance mechanisms and their implications for innovation. Schulz (2007) expanded on
this by delving into the interconnected nature of M&As and innovation, yet without a specific focus on
startups. Similarly, Rossi, Tarba, & Raviv (2013) have highlighted the acquisition trends in
technology-driven sectors and their mixed outcomes for stakeholders, further pointing to the
complexities involved in these transactions. The intensive acquisition of startups by "Big Tech"
companies, as documented by Suo, Yang, & Ji (2023), Jin (2019), and Reddy (2018), underscores a
strategic pattern within the industry. These studies collectively suggest an increase trend of leveraging
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early-stage innovation through acquisitions. However, they stop short of examining the subsequent
impact on the innovative capacities of the startups involved. The regulatory scrutiny and legislative
responses to these acquisition trends, as noted in broader discussions on market competition and
innovation dynamics (Zakrzewski, 2021), also highlight the growing concern over potential anti-
competitive behaviours. However, the conversation predominantly revolves around the strategies of the
acquiring larger companies, with less emphasis on how these acquisitions influence the continued
innovation and development journey of the startups being acquired.

This gap in literature underscores a critical need for research focused on the innovative output of
startups post-acquisition. Therefore, the proposed research question:

"How do mergers and acquisitions by large tech companies affect the innovative output of acquired
ventures in the tech sector?" seeks to address this void. By leveraging insights from (Man &
Duysters, 2005), (Schulz, 2007), and (Rossi, Tarba, & Raviv, 2013), among others, this research aims
to explore and understand the impact of startup acquisitions by larger tech companies on innovation.
Specifically, it seeks to analyse whether these acquisitions stimulate or hinder the innovative output of
the startups involved. This investigation is crucial for providing empirical evidence and insights into
how such corporate strategies affect the broader landscape of technological innovation, competition,
and economic growth within the tech sector. Through this research, I aim to contribute to the ongoing
academic debate, offer guidance for policymakers on fostering a healthy innovation ecosystem, and
provide strategic recommendations for both startups and established firms considering M&A activities.

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 2. Literature Review

As mentioned in the introduction, the role of startups in driving innovation and contributing to
economic growth is increasingly recognized within scholarly and business communities. Startups
represent agility and creativity, deploying new technologies to challenge established industries and
introduce transformative products and services (Decker et al., 2014).

Due to its growing relevance, the phenomenon of killer acquisitions has gained significant attention in
the fields of antitrust policy and innovation economics. These acquisitions involve established
companies buying emerging competitors primarily to shut down their innovation projects, thereby
eliminating potential future competition (Cunningham, Ederer, & Ma, 2021). This strategy is
particularly common in industries marked by rapid technological advancements, such as
pharmaceuticals and technology.

Cunningham, Ederer, and Ma (2021) made a significant contribution to the literature by analyzing the
pharmaceutical industry, showing that incumbent firms often acquire innovative drug projects not to
develop them but to prevent competition. Their empirical findings suggest that 5.3% to 7.4% of
acquisitions in their sample could be classified as killer acquisitions. These transactions often occur
just below the regulatory thresholds for antitrust scrutiny. Similarly, Kamepalli, Rajan, and Zingales
(2020) conducted an examination of the technology sector, observing that large tech firms acquire
startups to eliminate potential threats, thereby maintaining market dominance and stifling competition.
The pharmaceutical industry has been a primary focus due to the significant stakes involved in drug
development and public health. Studies show that the discontinuation of innovative drug projects due
to killer acquisitions delays the availability of new treatments and inflates drug prices by reducing
market competition (Cunningham et al., 2021). Similarly, in the technology sector, major firms like
Google and Facebook have been observed acquiring potential competitors to eliminate disruptive
innovations and maintain their market dominance (Kamepalli et al., 2020). These findings indicate that
killer acquisitions are a prevalent phenomenon across multiple high-tech industries. Research
consistently demonstrates that killer acquisitions significantly reduce innovation. Acquired projects
that overlap with the acquirer's existing products are frequently discontinued, leading to fewer new
products and slower technological advancement (Cunningham et al., 2021; Kamepalli et al., 2020).
This decline in innovation has significant implications for market dynamics as it consolidates market
power among a few dominant firms and diminishes competitive pressures that typically drive
technological advancement and consumer choice.

The implications for antitrust policy are profound. Current frameworks are often inadequate for
effectively addressing killer acquisitions as many such transactions fall below traditional regulatory
thresholds and escape investigation. This limitation highlights the need for revised antitrust policies
that can better detect and mitigate the competitive harms posed by these acquisitions (Letina et al.,
2024).

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2.1 Patent Citations as a Measure of Innovation

Patent citations are increasingly recognized as a crucial metric for gauging innovation and
technological advancement (Carpenter et al., 1981). This recognition arises from the understanding that
citations can demonstrate both the impact and the significance of a patent within a larger technological
and economic framework (Harhoff et al., 1999). Researchers have utilized patent citation analysis to
trace the dissemination of technological knowledge, evaluate the economic influence of patents, and
comprehend the interconnections within innovation networks (Trajtenberg, 1990; Collins & Wyatt,
1988).

The use of patent citations as a proxy for innovation is based on their capacity to trace the movement
of knowledge across different technological fields and geographical areas (Jaffe & Trajtenberg, 2002).
Research by Harhoff, Scherer, and Vopel (1999) indicates a strong correlation between the number of
citations a patent receives and its economic value. Patents with numerous citations frequently signify
important technological advancements (Tijssen, 2001), which implies that they hold substantial
commercial potential. This correlation highlights the usefulness of patent citations in pinpointing
patents that are likely to be economically valuable and influential within their respective domains.

Analyzing the geographical distribution of patent citations provides crucial insights into regional
innovation capacities and technological leadership. As highlighted by Henderson, Jaffe, and
Trajtenberg (1998), regions with higher levels of patenting activity typically demonstrate stronger
innovation networks and increased knowledge exchange. The geographical aspect is essential for
comprehending the global distribution of innovation and the ways in which different regions contribute
to and benefit from technological progress (Criscuolo & Verspagen, 2008).

Moreover, the methodologies used in patent citation analysis often incorporate advanced statistical
tools and models (Érdi et al., 2013; Abbas et al., 2014). For instance, Exponential Random Graph
Models (ERGMs) are employed to examine the structure and formation mechanisms of patent citation
networks (Chakraborty, 2020). These models aid in understanding the underlying factors influencing
citation patterns, including the patent's age, technological category, and geographical origin. Such
analyses are crucial for revealing the dynamics of knowledge transfer and the incremental nature of
innovation (Jaffe, 2002).

Despite the valuable insights offered by patent citation analysis, significant areas for improvement and
further research remain. A key concern is the need for more in-depth studies to establish causal
relationships between patent citations and actual technological advancements or market success.
Furthermore, it is essential to address the variability in patent quality. Not all patents hold the same
level of importance, and current citation metrics may not adequately distinguish between highly
innovative patents and those with lesser impact (Higham, 2021). More refined metrics could improve
the accuracy of patent citation analysis in assessing genuine innovation. Additionally, although patent
citations provide a valuable quantitative measure of innovation, they may not fully capture the
qualitative aspects of technological advancements (Jaffe, 2002). Innovations that are not patented or
are cited less frequently yet have significant practical applications might be underrepresented in such
analyses. Therefore, combining qualitative assessments with quantitative metrics could offer a more
comprehensive understanding of innovation.
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Lastly, from the literature, we can conclude that killer acquisitions and patent citations are crucial areas
of study for understanding the dynamics of innovation. Killer acquisitions significantly impede
technological advancement by reducing competitive pressures, while patent citations remain a
powerful tool for measuring innovation. However, there is a need for more nuanced and
comprehensive methodologies to fully capture the impact of these acquisitions on innovation and
market competition (Carpenter et al., 1981).

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 3. Theoretical Framework

Understanding the impact of mergers and acquisitions (M&A) on innovation within the tech sector
requires a robust theoretical framework. This research draws on several key theories to examine how
these corporate strategies influence the innovative outputs of acquired ventures. These theories include
the Resource-Based View (RBV) Theory, Knowledge-Based View (KBV) Theory, Industry Context
Theory, Dynamic Capabilities Theory, and Organizational Learning Theory.

In this chapter, we will explain the four hypotheses that guide this examination and provide a
theoretical foundation for each.

3.1 Hypothesis 1 (H1) “There is no significant difference in the number of

patent citations for acquired ventures before and after the acquisition”.

This hypothesis is underpinned by the Resource-based View (RBV) Theory, which posits that firms
acquire other firms to gain access to valuable resources and capabilities that they do not possess. In this
context, patents and innovative capabilities are key resources. If the acquiring firm integrates these
resources effectively, the innovation output, as measured by patent citations, may not significantly
change. However, if the primary motive is to neutralize competition, patent citations might decrease.
Studies have shown mixed results on this front.

Research in this area has produced varied outcomes. For instance, some studies suggest that
acquisitions can lead to a decline in innovation. Phillips and Zhdanov (2012) found that acquisitions
often reduce the incentives for the acquired firms to innovate, particularly when the acquiring firm’s
primary objective is to eliminate potential competition. This reduction in innovation is reflected in a
decline in patent citations, as the acquiring firm may deprioritize the acquired venture’s ongoing
projects in favour of its own strategic goals.

On the other hand, other studies highlight the potential positive impact of acquisitions on innovation
output. For example, Bena and Li (2014) demonstrated that when the acquiring firm has a high
absorptive capacity, it can effectively assimilate and leverage the acquired firm’s innovative
capabilities, resulting in sustained or even increased patent citations. Their research underscores the
importance of the acquiring firm's ability to integrate new knowledge and resources, which can
enhance the overall innovative output.

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Furthermore, Cloodt, Hagedoorn, and Van Kranenburg (2006) provided evidence that the post-
acquisition innovation performance of ventures is highly dependent on the technological and market
relatedness between the acquiring and acquired firms. Their study indicated that acquisitions could
lead to synergistic benefits, where the combined entity leverages complementary strengths, thereby
maintaining or increasing the citation counts of patents.

Moreover, Berchicci, King, and Tucci (2011) examined the long-term effects of acquisitions on
innovation and found that while there might be a short-term decline in patent citations due to the initial
integration challenges, the long-term effects could be positive if the acquisition facilitates access to
new markets, technologies, and resources. This longitudinal perspective emphasizes the dynamic
nature of innovation outcomes post-acquisition.

These mixed results suggest that the impact of acquisitions on patent citations is multifaceted and
influenced by various factors, including the acquiring firm’s absorptive capacity, the relatedness of the
firms’ technologies, and the integration strategy adopted. As such, the hypothesis that there is no
significant difference in patent citations before and after acquisition remains plausible, depending on
the specific circumstances and strategic decisions of the firms involved.

3.2 Hypothesis 2 (H2): “There is no significant difference in the number of

patents filed by acquired ventures before and after the acquisition”.

This hypothesis is grounded in the Knowledge-Based View (KBV) Theory, which posits that firms
acquire other firms to leverage their valuable knowledge assets, such as patents. If the acquisition is
aimed at enhancing these knowledge assets, the number of patents should remain stable, as the
acquired firm's innovative activities are supported and sustained. However, if the acquisition is
primarily to eliminate competition, there might be a reduction in patent output (Cunningham et al.,
2021). The Organizational Inertia Theory is also applicable, as it suggests that firms resist change and
maintain established routines post-acquisition, leading to stable patent numbers (Phillips & Zhdanov,
2012).

Research shows mixed results. Hitt et al. (1991) found that acquisitions often disrupt R&D
productivity, leading to a decline in patent output. Conversely, Ahuja and Katila (2001) demonstrated
that effective integration of R&D capabilities could enhance innovation, increasing patent filings.
Makri, Hitt, and Lane (2010) found that acquisitions with complementary technologies often result in
synergistic benefits, boosting patent output. Kapoor and Lim (2007) highlighted that firms with strong
innovation cultures and decentralized R&D practices are likely to maintain or increase patent filings
post-acquisition. These mixed findings suggest that the impact of acquisitions on patent numbers

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depends on various factors, including strategic fit, integration processes, and the innovation culture of
the acquiring firm.

3.3 Hypothesis 3 (H3): “There is no significant difference in the change in

patent citations between ventures acquired by firms in the same industry and
those acquired by firms in different industries post-acquisition”.

This hypothesis is informed by the Industry Context Theory, which posits that industry-specific factors
significantly influence the outcomes of M&A activities. According to this theory, the characteristics
and dynamics of the industry in which firms operate play a crucial role in shaping the strategic
decisions and post-acquisition performance. However, the theory also suggests that the effects of these
industry-specific factors can be mitigated by effective integration and absorptive capacities of the
acquiring firms. If the acquiring firms manage knowledge integration effectively, the change in patent
citations might not differ significantly between same-industry and cross-industry acquisitions. Rossi,
Tarba, and Raviv (2013) highlight that successful knowledge integration processes can help in
retaining and enhancing the innovative output of the acquired firms, regardless of the industry context.

Moreover, the Resource Dependency Theory provides additional insights into this hypothesis. This
theory suggests that firms engage in acquisitions to secure critical resources that are necessary for their
survival and growth. These resources can include technological capabilities, skilled personnel, and
innovative knowledge embedded in patents. The effective utilization of these resources post-
acquisition is heavily influenced by the acquiring firm's strategic management and integration
capabilities. Suo, Yang, and Ji (2023) argue that when firms strategically integrate these resources, the
outcomes in terms of patent citations can be similar across different industry contexts. This implies that
the strategic integration of acquired resources is more crucial than whether the acquisition occurred
within the same industry or across different industries.

Research in this domain has produced varied results. Some studies suggest that acquisitions within the
same industry tend to perform better in terms of innovation outcomes due to higher compatibility and
ease of integration. However, other studies have shown that cross-industry acquisitions can also yield
positive innovation results if the acquiring firm has strong absorptive capacities and effective
integration strategies. For instance, Bena and Li (2014) found that cross-industry acquisitions could
lead to significant innovation gains when the acquiring firm effectively leverages the acquired firm's
unique capabilities and resources.

In summary, while industry-specific factors undoubtedly influence the outcomes of M&A activities,
the ability of the acquiring firm to integrate and utilize acquired knowledge effectively can play a more
decisive role. Therefore, the hypothesis that there is no significant difference in the change in patent

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citations between same-industry and cross-industry acquisitions remains plausible, contingent on the
strategic integration efforts of the acquiring firms.

3.4 Hypothesis 4 (H4): “There is no significant difference in the change in

the number of patents filed between ventures acquired by firms in the same
industry and those acquired by firms in different industries post-acquisition”.
This hypothesis draws on the Dynamic Capabilities Theory, which refers to a firm's ability to adapt to
changing environments by integrating, building, and reconfiguring internal and external competencies.
According to this theory, firms with strong dynamic capabilities are better equipped to sustain their
innovative activities post-acquisition, regardless of whether the acquisition is within the same industry
or across different industries. Kim (2020) suggests that firms possessing robust dynamic capabilities
can effectively manage the complexities associated with integrating acquired ventures, thereby
maintaining stable patent outputs.

The Dynamic Capabilities Theory emphasizes that the success of post-acquisition innovation largely
depends on the acquiring firm's ability to recognize, assimilate, and exploit new knowledge. This
involves not only merging the acquired firm’s existing capabilities with those of the acquiring firm but
also reconfiguring these resources to respond to new market demands and technological opportunities.
When firms excel in these dynamic capabilities, the number of patents filed post-acquisition is likely to
remain consistent, irrespective of industry similarity.

Furthermore, the Organizational Learning Theory complements this perspective by highlighting the
importance of continuous learning processes within organizations. This theory posits that firms that
foster an environment of ongoing learning and knowledge exchange are more capable of maintaining
their innovation momentum after acquisitions. Schulz (2007) points out that effective organizational
learning involves the integration and application of new knowledge in a manner that enhances the
firm's existing competencies and innovation capabilities.

Research has shown that firms that prioritize learning and knowledge integration tend to exhibit stable
or increased patent outputs post-acquisition. For instance, Makri, Hitt, and Lane (2010) found that
firms with strong learning cultures and capabilities are better at leveraging the synergies arising from
acquisitions, leading to sustained innovation performance. This supports the notion that the number of
patents filed can remain stable post-acquisition if the acquiring firm effectively assimilates and utilizes
the acquired knowledge.

Additionally, the impact of industry similarity on innovation outcomes can be moderated by the
strategic integration practices of the acquiring firm. Kapoor and Lim (2007) argue that while industry
similarity can facilitate easier integration, the ultimate determinant of innovation success is the
acquiring firm's ability to strategically manage and integrate the acquired capabilities. This implies that
the strategic management of the integration process can neutralize the potential challenges posed by
cross-industry acquisitions, resulting in comparable patent outputs.

In summary, the Dynamic Capabilities Theory and the Organizational Learning Theory collectively
suggest that the ability to adapt, learn, and integrate new knowledge effectively is more critical to
sustaining innovation than the industry context of the acquisition. Therefore, the hypothesis that there
is no significant difference in the change in the number of patents filed between same-industry and
cross-industry acquisitions remains plausible, depending on the dynamic capabilities and learning
processes of the acquiring firms.

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 4. Empirical Strategy

This section of the thesis delineates the empirical strategy employed to analyse the impact of mergers
and acquisitions on the innovative output of startups within the tech sector. Central to this analysis are
the statistical methods utilized to assess changes in patent numbers and citation counts before and after
acquisitions. Specifically, the strategy incorporates paired t-tests to examine intra-company changes
and two-sample t-tests to evaluate the impact of industry alignment on these changes.

The paired t-test is utilized to assess the direct effects of mergers and acquisitions within individual
companies. This test compares the number of patents and citation counts before and after the
acquisitions for the same entities. By calculating the differences in patent numbers (DiffPatents) and
citation counts (DiffCitations) pre- and post-acquisition, this test aims to determine whether significant
changes in innovation output occur due to M&A activities. The primary goal here is to identify any
immediate and medium-term changes in the innovative activities as a direct result of corporate
acquisition strategies.

Following the assessment of changes within individual firms, the analysis extends to understand
broader industry effects using the two-sample t-test. This test is applied to compare the means of
DiffPatents and DiffCitations between two groups: one where the acquiring and acquired companies
are from the same industry and another where they are from different industries. This method is
particularly important for evaluating whether industry similarity influences the magnitude and
direction of changes in innovation outputs following an acquisition.

The implementation of these tests begins with detailed calculations of mean, standard deviation, and
standard error for the pre- and post-acquisition patent and citation data. These descriptive statistics set
the stage for subsequent inferential analysis, where t-values and p-values are calculated to assess the
statistical significance of the observed changes. Specifically, the hypotheses for the paired t-tests are
formulated to test if there are significant differences in the average number of patents and citations
before and after acquisitions. The hypotheses for the two-sample t-tests, on the other hand, are
designed to ascertain if these differences vary significantly between firms in the same industry
compared to those in different industries.

By employing paired t-tests and two-sample t-tests in a structured manner, this empirical strategy
provides a comprehensive assessment of how mergers and acquisitions influence innovation within the
tech sector. The use of paired t-tests allows for a nuanced understanding of the internal changes within
companies due to M&A, while the two-sample t-tests shed light on the role of industry alignment in
influencing these changes. The findings from these analyses are critical for stakeholders looking to
understand the dynamics of M&A and their implications on innovation, offering valuable insights that
can inform both strategic decision-making and policy formulation in the rapidly evolving tech industry.
This approach not only enhances the academic understanding of M&A impacts but also provides
practical guidance for navigating the complexities associated with such corporate restructuring
activities.

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4.1 Data collection

For this research, data was meticulously collected from multiple sources to provide a comprehensive
analysis of the impact of acquisitions on patent activity within major technology companies. The data
collection process involved two main datasets: acquisition details from the Eikon database and patent
data from Google Patents.

Acquisition Data from Eikon Database.

The acquisition data was sourced from the Eikon database, known for its extensive financial
information, including detailed records of mergers and acquisitions (M&A). The focus was on
acquisitions made by major technology companies, specifically Amazon, Meta (formerly Facebook),
Alphabet (Google), Apple, and Microsoft. The time frame selected for these acquisitions was from
January 1, 2012, to December 31, 2015. This period was chosen to allow for a robust analysis of the
pre- and post-acquisition impacts on patent creation and citation. Only acquisitions announced and
completed between January 1, 2012, and December 31, 2015, were included. The acquiring companies
as mentioned before are: Amazon, Meta, Alphabet, Apple, and Microsoft. As for the M&A type of
deal the following categories were selected to ensure a robust output: Disclosed Dollar Value Deal,
Undisclosed Dollar Value Deal, Stake Purchases. Another useful category for the data analysis is for
both the Target and Acquiror the Macro industry and Middle industry.

In conclusion a total of 194 observations were gathered, representing companies acquired by the
selected tech giants.

Patent Data from Google Patents.

The aim of this component of the research was to meticulously gather and analysed patent data from
Google Patents, specifically examining the periods before and after targeted acquisitions to assess
changes in patent activities and citations. This analysis is pivotal for understanding the influence of
corporate acquisitions on innovation within the tech sector. Patent data was obtained from Google
Patents, with a focus on identifying changes in patent filings and citations related to the acquired
entities. To establish a robust analytical framework, data was segregated into two distinct phases:

Pre-Acquisition Phase: Data from January 1, 2008, to December 31, 2011, was collected to establish a
baseline for patent activities prior to the acquisitions.

Command used on Google Patents:

assignee:(Target name) before:publication:20111231 after:publication:20080101 status:GRANT

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Post-Acquisition Phase: Data from January 1, 2016, to December 31, 2019, was gathered to evaluate
the impact of acquisitions on patent activities.

assignee:(Target name) before:publication:20191231 after:publication:20160101 status:GRANT

Selection Criteria for Patents

For the purpose of this study, only granted patents were included. The status "GRANT" was
specifically chosen to ensure that the patents analysed were not only filed but had undergone rigorous
examination and were confirmed to represent genuine innovations. This criterion was crucial for the
following three reasons: Verification of Innovation, a granted patent status indicates that the innovation
has been thoroughly vetted and acknowledged by a patent office, ensuring that the patented innovation
adheres to the necessary criteria of novelty, non-obviousness, and industrial applicability. Reduction of
Noise, Including only granted patents reduces the potential distortion that might arise from considering
filed patents that may never progress to grant status, thereby providing a more accurate representation
of genuine innovation activity. Indicative of Commercialization Potential, granted patents are more
likely to be commercialized and utilized in practical applications, making them a crucial measure for
assessing the impact of acquisitions on the innovative outputs of companies.

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 5. Analysis and Findings
The empirical investigation detailed herein aims to assess the influence of M&A on patent citations
and the number of patents, which serve as quantitative and qualitative measures of innovation,
respectively. This study scrutinizes whether acquisitions lead to significant changes in these innovation
outputs and examines whether these effects vary based on industry alignment between the acquiring
and target firms.

Four hypotheses have been articulated to guide this examination:

1. Hypothesis 1 (H1): There is no significant difference in patent citations before and after the
acquisition.
2. Hypothesis 2 (H2): There is no significant difference in the number of patents before and after
acquisition.
3. Hypothesis 3 (H3): There is no significant difference in the change in patent citations between
firms in the same industry and those in different industries post-acquisition.
4. Hypothesis 4 (H4): There is no significant difference in the change in the number of patents
between firms in the same industry and those in different industries post-acquisition.

By employing statistical tests such as paired and two-sample t-tests, this analysis leverages data from
Google Patents and acquisition details from the Eikon database. The following sections will describe
the methodology, present the findings from these tests, and interpret the implications within the
broader context of innovation management in the tech sector. The results aim to contribute
substantively to the academic discourse surrounding M&A activities.

5.1 Analysis of Hypothesis 1 (H1)

"There is no significant difference in patent citations before and after the acquisition."

Variable Obs Mean Std. Err. Std. Dev. 95% Conf. Interval

PostAcquisition 194 1.795.206 6.080.347 8.468.944 59.59601 - 299.4452

PreAcquisition 194 8.807.732 2.875.035 400.446 31.37209 - 144.7825

diff 194 914.433 5.178.907 7.213.383 -10.70193 - 193.5885

The influence of mergers and acquisitions (M&A) on the number of patents filed by acquired ventures
was assessed using a paired t-test. This hypothesis is grounded in the Knowledge-Based View (KBV)
Theory, which posits that firms acquire others to leverage their valuable knowledge assets, such as
patents. The Organizational Inertia Theory also supports this hypothesis by suggesting that firms
maintain established routines post-acquisition, leading to stable patent numbers. The analysis
incorporated data from 194 paired observations, comparing the number of patents before and after the
acquisitions.

Statistical analysis revealed that the mean number of patents increased from 1.62 before the acquisition
to 4.29 after the acquisition, translating to an average increase of 2.67 patents. The standard error of
this difference was 1.31, with a standard deviation of 18.19. The 95% confidence interval for the mean
difference ranged from -0.094 to 5.245.
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The statistical significance of these results was evaluated through p-values derived from the t-test:

 The two-tailed p-value was 0.0423, testing the null hypothesis that there is no difference in the
number of patents before and after acquisitions. As this value is less than the conventional
threshold of 0.05, the null hypothesis can be rejected at the 5% significance level. This
indicates a statistically significant increase in the number of patents post-acquisition.
 The one-tailed p-value was 0.0211, testing the hypothesis that post-acquisition patent counts
are higher than pre-acquisition counts. This further supports rejecting the null hypothesis,
suggesting a significant positive effect of acquisitions on patent output.

In conclusion, the analysis demonstrates a statistically significant increase in the number of patents
following acquisitions, validating the hypothesis that M&A activities positively impact the patenting
activities of acquired ventures. This result underscores the potential of acquisitions as a strategic tool to
enhance a firm's innovative capabilities, as measured by its patent output. These findings align with the
idea that integrating the resources and capabilities of merged entities can lead to enhanced inventive
productivity. The results support the KBV and Organizational Inertia theories, highlighting that the
number of patents remains unchanged due to the continuity of established practices.

5.2 Analysis of Hypothesis 2 (H2)

"There is no significant difference in the number of patents before and after acquisition."

Variable Obs Mean Std. Err. Std. Dev. 95% Conf. Interval

PostAcquisition 194 4.288.660 1.349.760 1.879.999 1.626484 - 6.950835

PreAcquisition 194 1.618.557 0.361011 502.830 0.9065235 - 2.33059

diff 194 2.670.103 1.305.943 1.818.969 0.0943496 - 5.245857

The influence of mergers and acquisitions (M&A) on the quantity of patents issued to acquired firms
was assessed using a paired t-test. This statistical test compared the number of patents before and after
the acquisitions, incorporating data from 194 paired observations. The results from the analysis showed
that the mean number of patents increased from 1.62 before the acquisition to 4.29 after the
acquisition. This change translates to an average increase of 2.67 patents, with a standard error of 1.31.
The standard deviation associated with the differences was 18.19, and the 95% confidence interval for
the mean difference extended from -0.094 to 5.245.

From the statistical test, the following p-values were computed:

 The two-tailed p-value was 0.0423, which evaluates the null hypothesis asserting that there is
no difference in the number of patents before and after acquisitions. Since this value is less than
the conventional threshold of 0.05, the null hypothesis can be rejected at the 5% significance
level. This indicates that there is a statistically significant increase in the number of patents
post-acquisition.
 The one-tailed p-value was 0.0211, testing the hypothesis that post-acquisition patent counts
are higher than pre-acquisition counts. This value further supports the rejection of the null
hypothesis, suggesting a significant positive effect of acquisitions on patent output.

In conclusion, the analysis demonstrates a statistically significant increase in the number of patents
following acquisitions, validating the hypothesis that mergers and acquisitions have a positive impact
on the patenting activities of acquired companies. This result underscores the potential of acquisitions
as a strategic tool to enhance a firm's innovative capabilities, as measured by its patent output. The
17
findings are consistent with the idea that integrating the resources and capabilities of merged entities
can lead to enhanced inventive productivity. This confirmation of a positive effect invites further
exploration into the mechanisms by which acquisitions may foster such increases in patent output,
including the possible roles of enhanced resource allocation, combined expertise, and expanded
research and development initiatives.

5.3 Analysis of Hypothesis 3 (H3)

"There is no significant difference in the change in patent citations between firms in the same industry
and those in different industries post-acquisition."

Group Obs Mean Std. Err. Std. Dev. 95% Conf. Interval
0 150 1.064.133 6.387.687 7.823.287 -19.8082 - 232.6349
1 44 4.040.909 6.928.200 4.595.648 -99.31137 - 180.1296
combined 194 9.144.330 5.178.907 7.213.383 -10.70193 - 193.5885
diff 194 6.600.424 1.239.011 3.103.864 -178.3779 - 310.3864

This hypothesis explores whether the industry alignment between acquirer and target, whether they
operate within the same mid industry affects the variation in patent citations following an acquisition.
The investigation employs a two-sample t-test with equal variances to analyse the differences in patent
citation changes between matched and unmatched industry pairs among the acquisitions. The dataset
classified the acquisitions into two groups based on industry similarity: Group 0 (Different Industry),
which comprises acquisitions where the acquirer and target do not share the same mid industry,
representing 77.32% of the cases with 150 observations, and Group 1 (Same Industry), consisting of
acquisitions where both entities are from the same mid industry, accounting for 22.68% of the dataset
with 44 observations.

The statistical analysis revealed that the mean patent citations for Group 0 (different industry) were
106.41, whereas for Group 1 (same industry), the mean was significantly lower at 40.41. Despite this
observable difference in means, the statistical test generated a t-value of 0.5327 across 192 degrees of
freedom, indicating a low statistical power to detect a significant difference. The computed p-values
were as follows:

 A two-tailed p-value of 0.5948 tests the hypothesis of no difference in patent citation changes
between the two groups.
 One-tailed p-values of 0.7026 and 0.2974 respectively test the propositions that Group 0 has
fewer or more citations than Group 1.

Given these p-values, all considerably higher than the conventional threshold of 0.05, there is
insufficient evidence to reject the null hypothesis. This outcome suggests that the similarity in mid
industry between the acquirer and the target does not significantly influence the change in patent
citations post-acquisition.

The analysis concludes that the industry congruence between the acquirer and target does not
significantly impact the variations in patent citations following the acquisition. This finding implies
that mid industry alignment may not be as critical in driving the innovative output measured through
patent citations as might be presumed. It prompts further investigation into other factors that could
influence post-acquisition innovation, such as the nature of integration strategies, cultural alignment,
and the specific technologies involved. This insight could guide strategic decision-making processes in
mergers and acquisitions, highlighting the need to consider a broader array of factors beyond mere
industry similarity to optimize post-acquisition innovation outcomes.

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5.4 Analysis of Hypothesis 4 (H4)
"There is no significant difference in the change in the number of patents between firms in the same
industry and those in different industries post-acquisition."

Group Obs Mean Std. Err. Std. Dev. 95% Conf. Interval

0 150 3.133.333 1.644.071 2.013.567 -0.1153717 - 6.382038

1 44 1.090.909 1.321.404 8.765.201 -1.573956 - 3.755774

combined 194 2.670.103 1.305.943 1.818.969 0.0943496 - 5.245857
diff 194 2.042.424 3.123.194 8.202.602 -4.117754 - 8.202602

This hypothesis explores the impact of industry alignment on the quantitative aspect of innovation,
specifically the number of patents filed post-acquisition. It investigates whether acquisitions within the
same mid industry, as opposed to across different industries, influence the patent productivity of
acquired firms. To analyze this, a two-sample t-test with equal variances was employed, segregating
the data into two groups based on industry similarity.

Group Classification:

 Group 0 (Different Industry) consists of cases where the acquirer and the target do not share the
same mid industry. This group includes 150 observations, representing the majority of the data
set.
 Group 1 (Same Industry) comprises cases where both entities belong to the same mid industry,
with 44 observations recorded.

Statistical Outcomes:

The mean number of patents in Group 0 was 3.13, indicating a higher level of patent output compared
to Group 1, which had a mean of 1.09. Despite these differences, the t-test yielded a t-value of 0.6540
across 192 degrees of freedom, suggesting a minimal statistical distinction between the groups under
conventional analysis criteria.

P-Values Analysis:

 The two-tailed p-value of 0.5139 tests the hypothesis that there is no difference between the
groups, which in this context fails to reject the null hypothesis at the standard alpha level of
0.05.
 The one-tailed p-values were 0.7430 for testing if Group 0 has fewer patents than Group 1 and
0.2570 for the converse. Both outcomes support the conclusion that there is no statistically
significant difference between the groups regarding patent outputs post-acquisition.

Interpretation and Implications:

19
The results indicate that industry similarity does not significantly affect the number of patents
produced following an acquisition. This suggests that the mid industry alignment between acquirer and
target does not play a decisive role in influencing the patent activities post-merger. This finding
challenges the notion that industry congruence is a crucial factor for achieving synergistic gains in
innovation post-acquisition and highlights the potential importance of other factors such as strategic fit,
integration processes, and innovation management practices.

The lack of significant difference in patent outputs between acquisitions in the same industry versus
different industries underscores the complexity of innovation dynamics post-acquisition. It suggests
that to harness the innovative potential of acquired firms effectively, companies might need to look
beyond industry similarity and consider a broader range of strategic, operational, and cultural factors.
Further research could investigate these dimensions in greater detail to provide a more comprehensive
understanding of the factors that drive post-acquisition innovation success.

20
 6. Discussion and Conclusion
6.1 Overview of Findings
This thesis explored the impact of mergers and acquisitions (M&A) on the innovation outputs of
ventures within the tech sector, focusing on patent citations and the number of patents pre- and post-
acquisition. The findings provide nuanced insights into how M&A activities influence innovation.

Hypothesis 1 posited that there would be no significant difference in patent citations before and after
acquisitions. The paired t-test analysis showed a mean increase in patent citations from 88.08 to 179.52
post-acquisition, with an average increase of 91.44 citations. Despite this observable increase, the two-
tailed p-value of 0.079 indicated that this change was not statistically significant at the conventional
5% significance level. However, the one-tailed p-value of 0.0395 suggested a significant increase in
patent citations when specifically anticipating an increase post-acquisition. These findings partially
support the Resource-Based View (RBV) Theory, which suggests that firms acquire other firms to gain
valuable resources, such as patents, that enhance their innovative capabilities. The observed increase in
patent citations indicates that acquired ventures may benefit from the resources and capabilities of the
acquiring firm, potentially leading to more influential patents. The Absorptive Capacity Theory, which
posits that the acquiring firm's ability to assimilate and utilize new knowledge is crucial for innovation,
further explains the observed increase. However, the lack of statistical significance in the two-tailed
test implies that this positive effect is not definitive and may vary depending on the specific context of
the acquisition.

Hypothesis 2 suggested no significant difference in the number of patents filed by acquired ventures
before and after acquisitions. The analysis revealed a statistically significant increase in the mean
number of patents from 1.62 to 4.29 post-acquisition, with an average increase of 2.67 patents. The
two-tailed p-value of 0.0423 confirmed that this increase was statistically significant. These findings
strongly support the Knowledge-Based View (KBV) Theory, which asserts that firms acquire others to
leverage their knowledge assets, leading to enhanced innovative outputs. The significant increase in the
number of patents post-acquisition suggests that the integration of the acquired firm's capabilities and
resources leads to higher patent productivity. The Organizational Inertia Theory, which suggests that
established routines and practices persist post-acquisition, also aligns with these findings, indicating
that the continuity of R&D activities in the acquired firms contributes to sustained or increased patent
filings.

Hypothesis 3 examined whether the industry alignment between acquirer and target affects the change
in patent citations post-acquisition. The two-sample t-test showed no significant difference in patent
citations between acquisitions within the same industry (Group 1) and those in different industries
(Group 0). The mean patent citations for Group 0 were 106.41, compared to 40.41 for Group 1, with a
two-tailed p-value of 0.5948, indicating no statistical significance. The findings suggest that industry
alignment does not significantly influence patent citations, challenging the Industry Context Theory,
which posits that industry-specific factors are crucial in determining M&A outcomes. Instead, these
results align more closely with the Resource Dependency Theory, which emphasizes the strategic
importance of resource acquisition and effective integration over industry similarity. The lack of
significant difference implies that the acquiring firm's ability to strategically manage and integrate the
acquired firm's resources and capabilities plays a more critical role in determining the innovation
outcomes, regardless of industry alignment.

Hypothesis 4 explored whether industry alignment influences the number of patents filed post-
acquisition. The analysis revealed no significant difference between same-industry acquisitions (Group
1) and different-industry acquisitions (Group 0). The mean number of patents for Group 0 was 3.13,
while for Group 1, it was 1.09. The two-tailed p-value of 0.5139 indicated no statistical significance.
21
These findings further support the Dynamic Capabilities Theory, which suggests that a firm's ability to
adapt, integrate, and reconfigure internal and external competencies is crucial for sustaining innovation
post-acquisition. The lack of significant difference between same-industry and cross-industry
acquisitions implies that dynamic capabilities and effective organizational learning processes are more
influential in driving innovation than industry alignment. The Organizational Learning Theory also
supports these findings, emphasizing that continuous learning and knowledge integration within the
acquiring firm can maintain or enhance innovation outputs, irrespective of industry similarity.

The analysis across the four hypotheses provides a comprehensive understanding of how mergers and
acquisitions impact innovation outputs in the tech sector. While acquisitions generally lead to an
increase in patent quantity, their effect on patent quality, as measured by citations, is less clear and
context-dependent. The findings highlight the importance of effective resource integration, dynamic
capabilities, and organizational learning in driving post-acquisition innovation, rather than relying
solely on industry alignment. These insights contribute to the broader discourse on M&A strategies,
emphasizing the need for a holistic approach that considers strategic fit, integration processes, and
innovation management practices to optimize post-acquisition innovation outcomes.

6.2 Limitations of the Analysis

The analysis is subject to limitations that could affect the generalizability and interpretation of the
findings. One significant limitation is the acquisition and patent analysis period. The time period
covered by the data may not fully capture the long-term effects of acquisitions on innovation, as patent
citations and creations can evolve significantly over longer periods. Innovations often take time to
mature and be recognized within their respective fields, meaning that the true impact of an acquisition
on patent citations might not become apparent until many years later.

Another critical limitation is related to data constraints. The dataset primarily included information up
to five years post-acquisition, which may not be sufficient to observe matured innovative outcomes or
delayed effects in patent activities. The innovation process can be lengthy, with some R&D projects
initiated post-acquisition taking several years to result in patentable inventions. Additionally, the effect
of organizational changes and resource integration following an acquisition might only manifest after
an extended period. Therefore, the five-year window may capture immediate changes but miss out on
the longer-term trends and impacts.

Furthermore, the analysis does not account for other variables that might influence innovation outputs,
such as changes in R&D spending, market conditions, or the strategic decisions of the acquiring firms.
These factors can significantly affect the number and impact of patents but were not controlled for in
the current study. The lack of such control variables means that the observed effects might be
influenced by external factors not directly related to the acquisitions themselves.

Moreover, the dataset may have limitations in terms of its representativeness and completeness. It
might not cover all relevant acquisitions within the specified industries or might exclude some key
players, leading to potential biases in the findings. Additionally, variations in how different companies
report their patent activities could introduce inconsistencies in the data.

Another limitation concerns the specificity of patent data. Patents are just one measure of innovation,
and the analysis does not consider other forms of innovative output, such as product launches,
technological advancements not captured in patents, or improvements in processes and services. This
narrow focus might overlook broader innovation impacts resulting from acquisitions.

Lastly, the analysis assumes that all patents have an equal impact, whereas, in reality, the significance
of patents can vary widely. Some patents might represent groundbreaking innovations with substantial
influence, while others might be incremental improvements with limited impact. Without
22
differentiating between these, the analysis might not accurately reflect the true innovative contributions
post-acquisition.

Addressing these limitations in future research could provide a more comprehensive understanding of
the long-term effects of mergers and acquisitions on innovation. Extending the analysis period,
including additional control variables, ensuring data completeness and representativeness, considering
multiple measures of innovation, and accounting for the varying significance of patents would enhance
the robustness and validity of the findings.

6.3 Suggestions for Further Research

To build on the findings of this thesis and address its limitations, future research could consider several
enhancements. Firstly, the inclusion of additional control variables could provide deeper insights into
the drivers of changes in patent activities. Control variables such as R&D spending, the financial health
of the acquired firms, and whether a company was "killed" post-acquisition (i.e., its technologies were
shelved) could help to better isolate the effects of the acquisition itself from other influencing factors.
This would allow for a more nuanced understanding of how various aspects of an acquisition impact
innovation output.

Secondly, applying a Difference-in-Differences (DiD) approach could help isolate the effect of the
acquisition from other external factors. By comparing changes in innovation outputs between a
treatment group (acquired firms) and a control group (similar non-acquired firms) over the same
period, this method can provide a clearer picture of the causal impact of acquisitions on innovation.
This approach controls for time-invariant unobserved heterogeneity and common trends affecting both
groups, thus strengthening the validity of the findings.

Thirdly, analysing data over a longer period post-acquisition could help in understanding the prolonged
effects of mergers and acquisitions on innovation. Extending the time frame beyond the initial five
years would capture more of the long-term impacts, including delayed effects that might not be
immediately apparent. This could reveal trends and patterns in innovation outputs that develop over a
longer horizon, providing a more comprehensive view of the acquisition's impact.

Incorporating qualitative analysis could also enrich the understanding of why certain acquisitions lead
to increased innovation outputs while others do not. Qualitative methods such as case studies,
interviews, and in-depth analysis of company reports could uncover the strategic intent behind
acquisitions, the integration processes, and the organizational changes that accompany acquisitions.
These insights could explain the mechanisms driving the observed quantitative outcomes, adding depth
to the analysis.

Furthermore, future research could explore the role of cultural alignment and integration strategies in
influencing post-acquisition innovation. Understanding how cultural compatibility and the
effectiveness of integration practices impact innovation outcomes could provide valuable guidance for
companies aiming to maximize the innovative benefits of their acquisitions. This would also address
the potential variability in post-acquisition success due to differences in corporate culture and
management practices.

Lastly, considering multiple measures of innovation beyond just patents could offer a more holistic
view of the acquisition's impact. Including metrics such as new product launches, technological
advancements not captured in patents, and improvements in processes and services would provide a
broader perspective on how acquisitions influence innovation. This would help to capture the full
spectrum of innovative activities resulting from mergers and acquisitions.

23
By addressing these suggestions, future research could provide a more comprehensive and detailed
understanding of the complex relationship between mergers and acquisitions and innovation. These
enhancements would help to overcome the limitations of the current study, leading to more robust and
generalizable findings that can inform both academic research and practical decision-making in the
field of corporate strategy and innovation management.

24
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