David Smith
Dublin City University
In 2014 I returned to University after several years of running a business, both in Ireland and abroad. I completed the MSc Finance in DCU in 2015. Last year I was awarded an IRC Government of Ireland research scholarship, which began in October 2016.
Aim/Research Question
High-tech start-ups play a vital role in technological innovation and are often acquired by large, established firms with the resources and capabilities to successfully launch products in the market. While acquisition is seen as a win-win for both entrepreneurs and established firms, less is known about how these acquisitions affect regional economies—many of which provided incentivizing resources to the high-tech start-ups.
Our research examines the effect of high-tech acquisitions on regional economies as well as the post-exit effect of acquisitions on entrepreneurial recycling.
Background/Rationale
In spite of the importance of high-tech startups to economic growth, the impact of exit via acquisition has received relatively little attention in the literature. (Brown and Mason 2014, Mason and Harrison 2006) Extant M&A literature is often associated with job losses, with profitable firms acquiring less profitable firms, with a view to increasing efficiency and profitability. We must assess whether it makes sense to continue to incentivize development of high-tech firms using government funds, when the end result is often foreign acquisition and/or closure.
Methodology
The paper is based on evidence from a longitudinal study of the performance of the Irish software cluster. The original database identified all independent software development firms in Ireland in 2001 and their CEOs were surveyed in 2002. 116 CEOs responded to the survey (population of 258). In phase 2 (2007 and 2011) all the firms in the database were tracked and updated; documenting routes of exit among other measures, using a number of different sources. In phase 3 (2014 and 2016) follow-up checks were conducted on the post acquisition exit and survival rates of the 58 firms that had been acquired up to 2011. In order to measure the level of entrepreneurial recycling, the current (2016) roles of 117 of the cashed-out CEOs were examined.
Key Results
After 10 years 62 firms (24%) had closed. In addition, 66 firms (25.6%) had completed an exit. Of those, two (>1%) completed a public offering (IPO), six (2%) went through a management buy-out (MBO) and 58 (22.5%) were acquired. Between 2001-2011, 55% of all acquisitions in Ireland were cross-border acquisitions, and this rises to 81% for software acquisitions. By the end of 2014, 22 software development firms (38%) founded prior to 2002, and acquired over the period 2002-2011, had formally exited following acquisition. 50.8% of cashed-out CEOs started new ventures and another 10.5% actively invest in other start-ups. However, only a small proportion of the CEOs of acquired firms (5.3%) remained in post following acquisition.
Contributions
This research contributes to the literature by reporting post-acquisition closure rates and the post-acquisition ‘entrepreneurial recycling’ activities of the lead entrepreneur after they exit their original venture.
