Option Nature of Company Acquisitions Motivated by Competence Acquisition

The small business establishment is increasingly regarded as growth option creation. It is generally believed that a country will prosper if a sufficient number of small, technology-based companies are established to provide options for the development of new industries. Despite the general belief, empirical evidence concerning the conception of "small businesses as growth options" is yet non- existent. This paper tries to fill this gap by examining empirically the option nature of collaboration and acquisitions through an analysis of 111 small, technology-based company acquisitions. As a result, somewhat contrary to the earlier research, collaborative arrangements were not found to be used as options to acquire small, technology-based companies. Acquisitions, on the other hand, were used as options to enter a new technology or business area. The option nature of acquisitions was related to technology-based variables, such as the lower levels of maturity of the acquired competencies, possibilities to patent the acquired competencies, and the research and development intensity of the acquiring company. Growth option upside realization was found to be linked to market and cooperation-related variables: the relatedness of the acquiring and the acquired company, proactive sales motive of the seller, and favorable industry trend. The finding concerning the performance of the acquisition of related technological competencies would seem to be connected to imperfect markets of new technological competencies possessed by the acquired small businesses.