Trust and Long-Term Post-Merger Integration of Acquired Startups

Acquisition of start-up companies, as a means to obtain innovative capabilities, technologies and intellectual property assets, is becoming ever more prevalent among hi-tech Multi National Enterprises. Effective integration of... [ view full abstract ]

Acquisition of start-up companies, as a means to obtain innovative capabilities, technologies and intellectual property assets, is becoming ever more prevalent among hi-tech Multi National Enterprises. Effective integration of an acquired firm is long known to be a daunting task, and while the literature explores the integration process and MNE’s related strategic choices thoroughly, relatively few studies focus on the special case where the target is a small startup company. Moreover, these studies often treat the integration decisions as static ones and implicitly assume that they are implemented in proximity to the acquisition. Based on data from 89 Israeli startup-based subsidiaries of hi-tech MNEs, this study examines long-term changes in their level of integration, and identifies several antecedents to these changes. Our findings indicate that the degree of trust between the parties, departure of the founding-CEO of the startup, and business events with detrimental impact on the entire MNE - are predictors of long-term changes in the startup's business integration level.