Enterprise Systems and the Likelihood of Horizontal, Vertical, and Conglomerate Mergers and Acquisitions

Abstract

This paper examines the relationship between enterprise systems (ES) and the likelihood of mergers and acquisitions (M&A). The key argument is that since ES can reduce agency costs associated with internal coordination and the transaction cost of coordinating with external partners, ES may be related to the likelihood of M&A. Using a sample of 3,289 firms headquartered in North America from 2010 to 2018 that made 8,373 M&A deals, the empirical analysis suggests that ES are positively related to horizontal acquisitions and negatively related to conglomerate acquisitions. However, as internal coordination costs increase, ES are becoming associated with more conglomerate M&A, especially when the goal is to introduce new products and enter new markets. Also, in contexts where partners require transaction specific investments, ES are associated with a relative decrease in the number of horizontal and vertical M&A. These findings suggest that ES create options for managers to engage in ownership as well as information-based coordination, depending on the internal and external coordination costs as well as the goals of the organization.