Strategic complementarities in M&As: evidence from the US information retrieval services industry

The information age has increased our dependency on data, and consequently the economic value of information retrieval services (IRS) companies. While mergers and acquisitions (M&As) are a popular means to sustain growth for these companies, they often fail to fulfill the promise of shareholder value creation. This makes the inquiry into market valuation of M&As in the IRS industry timely and important. Using the concept of strategic complementarity that is relatively new in the M&A literature, we study industry and geographic complementarities between acquirers and targets as well as acquirer‐ and market‐specific contingency factors to better understand market valuation of M&As. In an empirical study of 821 M&As by 150 firms in the US IRS industry between 1993 and 2006, we show that the two types of complementarities have contrasting effects on market valuation of M&As. While the effect is positive for geographic complementarity at both state and division levels, the effect of industry complementarity is found to be negative except for acquirers in the Internet software and services mid‐industry. Additionally, our findings provide insights on the role of three contingent factors–acquirers’ age, size and stock market growth–that can help better understand diverging effects of industry and geographic complementarities.