Innovation and the Growth of Firms through M&A
M&A can be a key avenue to grow firms by dynamically reconfiguring their capabilities and enabling them to sustain innovation and adapt to change in the environment. In particular, M&A is effective when intangible assets that are key to innovation are hard to imitate because of corporate inertia or institutional constraints.
Pre-war electricity firms, which were founded by entrepreneurs and which realized fast growth without state backing, resorted to M&A to further growth amid a wave of innovation at the time in hydroelectric power generation technology. Such M&A was aimed at acquiring water rights, which were non-imitable intangible assets essential for the technology, as well as at attaining scale economies and capital. Such M&A constitutes an example of “M&A to innovate,” by which firms pursue innovation by dynamically reconfiguring their capabilities. Additionally, this is an early example of M&A in which anti-trust policy and promotion of innovation were balanced.