Choosing the Right Target

Corporate acquisition is a popular way for firms to grow and obtain innovative resources. However we know little about why acquirers choose one firm over another. We capture the influence of similarity and complementarity between acquirers' and target firms' products (current innovative value) and R&D pipelines (future innovative value) on whether a particular target firm is acquired. Insights from the Pharmaceutical industry reveal that acquirers value similarity and complementarity in target firms differently based on whether the comparison being made is with respect to their products or their R&D pipelines. Regarding their R&D pipelines acquirers prefer that the target firm has similar rather than complementarity resources. However the opposite is true concerning their own products: acquirers prefer that the target firm has complementarity versus similar resources.