Assignment 1
Watch these videos regarding Federal Acquisition Process.
Link: https://youtu.be/PBf4pduLgzo
Link: https://youtu.be/3k1qB-y0NFg
After watching these videos, reflect upon the federal acquisition process and then research some
aspect of the federal acquisition process. For this paper, you will need to find an article in the
library that relates to any aspect of the federal acquisition process and summarize and
discuss the article in the required paper. Feel free to compare your article to which aspect
of a Smores and remember to include a link to the article.
Write a two-page paper, plus the title page and a reference page. As always, read all the lesson
notes in Week 2 before you start this assignment as new or current events may have been updated
since the start of class.
Instructions:
•Written communication: Written communication is free of errors that detract from the overall
message.
•APA formatting: Resources and citations are formatted according to APA (6th edition) style and
formatting.
•Length of paper: typed, double-spaced pages with no less than a two-page paper.
•Font and font size: Times New Roman, 12 point.
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1746-8809.htm
IJOEM
12,2
The pre-acquisition process
The temporal hiatus between the
announcement and completion in
foreign acquisitions in Brazil
400
Manuel Portugal Ferreira
Graduate School of Management, Universidade Nove de Julho,
São Paulo, Brazil and
Instituto Politécnico de Leiria, Morro do Lena,
Alto do Vieiro, Leiria, Portugal
Received 17 September 2015
Revised 27 April 2016
Accepted 5 May 2016
Felipe Borini
Escola Superior de Propaganda e Marketing Programa de Mestrado e Doutorado
em Gestão Internacional and FEA, University of São Paulo, São Paulo, Brazil
Simone Vicente
Graduate School of Management, Universidade Nove de Julho,
São Paulo, Brazil, and
Martinho Ribeiro Almeida
University of São Paulo – FEA, São Paulo, Brazil
Abstract
Purpose – The purpose of this paper is to focus on the pre-acquisition process and, specifically, how the
complexity involved in the transaction may drive the temporal gap between the formal announcement and
the completion of the deal. The authors emphasize the time (in days) between announcement and completion.
Design/methodology/approach – The empirical setting consists of the cross-border acquisitions (CBAs) of
Brazilian firms by multinational corporations announced between 2008 and 2012. Using a sample of 741
acquisitions, the authors examine how institutional (cultural and regulatory) and technological complexity
and the predictable mitigating effect of prior acquisition experience in Brazil all impact on the time needed for
evaluating the target and negotiating.
Findings – The results show that these complexity factors do matter for hastening the process and that
recent experience with acquisitions in Brazil shortens the time needed to completion.
Originality/value – This study contributes to the literature on the acquisition process and the uncertainty
and complexity factors in CBA in an emerging economy.
Keywords Brazil, Mergers and acquisitions, Institution-based view, Acquisition experience,
Acquisition complexity
Paper type Research paper
International Journal of Emerging
Markets
Vol. 12 No. 2, 2017
pp. 400-414
© Emerald Publishing Limited
1746-8809
DOI 10.1108/IJoEM-09-2015-0184
Introduction
The worldwide wave of mergers and acquisitions (M&A) of the last two decades has also
been observed in Brazil. Between 2001 and 2013 there were about 7,800 M&A in Brazil
(PriceWaterhouseCoopers, 2013). Some of these were recorded in the press because of the
sheer size of the operations – such as the acquisition of the North American companies
Tyson Foods and Pilgrim’s Pride by JBS – or because firms entered a spiral of M&A that led
to the emergence of large multinationals in their industries – such as AmBev, Gerdau and
J&F (controller of the JBS Group). Yet, although M&A have become popular strategies for
growth among top managers, there is little knowledge on one facet of the process prior to the
M&A (Very and Schweiger, 2001; Dikova et al., 2010): the temporal hiatus between
announcement and completion. That is why in some instances the process of evaluation of
the target firm and the negotiation prior to completion are prolonged for days, months or
even years, while in other instances the period after signing the initial M&A agreement is
very short (an exception in Dikova et al., 2010).
Albeit the effects on firms’ performance (Bortoluzzo et al., 2014) and the difficulties of
integrating a new firm (Capron and Pistre, 2002; Dyer et al., 2004) are relevant, it is possible
to better understand M&A by analyzing the pre-acquisition process, including the temporal
hiatus between the formal announcement of the intent to acquire and the completion of the
deal (including the abandonment of the decision to acquire) (see also Dikova et al., 2010).
This temporal hiatus is likely to reflect the complexity involved in undertaking acquisitions,
that may originate from government intervention (Pablo, 2009; Rasiah et al., 2010; DuBois
and Primo, 2016), judicial decisions (Hotchkiss et al., 2013), difficulties of evaluating the
target firms (for instance due to technological complexity) differences in the institutional
and regulatory frameworks of the countries, among other problems.
In this study we examine the temporal hiatus, or time duration, between the formal
announcement of a cross-border acquisition (CBA) and the finalization of the deal. In a
quantitative study based on secondary data we tested how institutional and technological
complexity and the effect of prior acquisition experience (commonly referred to as
acquisition capability) may produce a longer temporal hiatus between announcement and
completion. The data were collected from the Securities Data Corporation Platinum
(SDC Platinum) – M&A, giving a final sample of 741 acquisitions of Brazilian firms by
foreign multinational corporations (MNCs) from 36 countries, between 2008 and 2012.
The results show that CBAs of high technology firms and CBAs by foreign MNCs with
recent acquisition experience in Brazil have a shorter temporal hiatus between announcement
and completion. Moreover, the institutional barriers in more regulated industries tend to be
more complex and require more time to complete. Moreover, older acquisition experience in
Brazil contributes to extending the duration of the pre-acquisition process. This is interesting
insofar as it likely denotes two important dimensions: first, there are a number of institutional
hazards of operating in less institutionally developed countries that foreign MNCs learn
first-hand and reflect in future deals by being more cautious. Second, many emerging
economies, and Brazil specifically, have been going through substantial institutional
pro-market transformations (Cuervo-Cazurra and Dau, 2009; Cuervo-Cazurra and Stal, 2011;
Dau, 2016) opening their frontiers to foreign investors and modernizing the infrastructures.
This means that to at least some extent the country presents fewer hazards than in the past.
In this instance, recent experience in the country is likely to provide a more accurate
perspective on the current barriers, hazards and complexities.
This study follows extant literature on the complexity that may underlie CBAs, the effect
of acquisition capabilities and the impact of different institutional dimensions and
differences between countries. There are implications for practice given that longer time
spent in the pre-acquisition process entails added costs – for example, management costs,
negotiation costs, costs with auditing and loss of managerial focus from other activities.
Thus, it is pertinent to understand the process of pre-acquisition and delays in completing
the deal.
Conceptual development and hypotheses
CBAs are distinct from domestic acquisitions since they involve firms in different countries
and are likely to impose a set of additional difficulties, or barriers, that need to be
anticipated. These may include the cultural and economic differences (Stahl and Voight,
2004) that may increase the costs of the acquisition itself and of the integration
post-acquisition (Morosini et al., 1998; Dyer et al., 2004). In fact, a large number of studies
based on institutional theory have sought to understand how the differences between
countries impact performance of the acquisitions and of the firms post-acquisition
(Brouthers and Brouthers, 2000; Luo and Tung, 2007; Dikova et al., 2010).
The preacquisition
process
401
IJOEM
12,2
402
Albeit the extant research is abundant on the motives and determinants for undertaking
domestic and foreign acquisitions (for in-depth literature reviews see Shimizu et al., 2004;
Cartwright and Schoenberg, 2006; Barkema and Schijven, 2008; Ferreira et al., 2014), one stage of
the acquisition process that has been little explored is the delay between announcement and
completion. The acquisition process (Figure 1) originates with the decision to acquire and the
evaluation of potential target firms. The process unfolds, usually protected by confidentiality
agreements, with the acquiring firm receiving additional information until it releases a formal
announcement of the intent to acquire. The next step is that both seller and buyer initiate
negotiations (Hotchkiss et al., 2013) until a decision is reached that may be either completing the
acquisition or abandoning it (Dikova et al., 2010). This period of getting additional information,
assessing risks and synergies, negotiating the terms of the deal, may last for months or even
years, extending the temporal hiatus between the formal announcement and the actual
completion of the deal. Holding new information, the acquiring firm may identify additional risks
(Hsieh and Walkling, 2005) and abandon the deal despite the costs already incurred. Dikova et al.
(2010) noted that about 25 percent of the acquisitions announced were later abandoned.
The time duration of the evaluation and negotiation of the target firm is relevant, due to the
costs incurred and the opportunity costs of not pursuing other alternatives. It is likely that the
temporal hiatus may be a signal that the deal involves greater risk and greater complexity
(Meyer and Altenborg, 2008). Although there are numerous sources of complexity – firm,
business and country specific – Dikova et al. (2010) noted that the institutional differences
between home and host countries of the investors increase the complexity and make it harder
to promote an adjustment between the two firms. At the industry level, it is likely that the
negotiation will involve more complexity in more regulated industries. Other sources of
complexity may pertain to the technology, either because it is difficult to evaluate the
knowledge, or because it is necessary to assess the impact of integrating different technologies
and the potential synergies. One of the hazards involving acquisitions – more crucial when
acquiring high technology/knowledge firms – is the loss of key personnel (Dyer et al., 2004).
In sum, we propose that the factors of complexity, risk and uncertainty that intervene in
acquisitions will tend to prolong the temporal hiatus between the formal announcement of the
acquisition and reaching a final decision.
However, prior experience with acquisitions (or the competence developed in acquiring – the
acquisition capability) (Hayward, 2002; Barkema and Schijven, 2008) may contribute to lessen
the time duration in two important manners. First, prior acquisition experience improves the
ability to evaluate potential target firms, and second, when this experience is in the same
country, it is likely to provide the acquiring firms with at least some understanding of the local
institutional idiosyncrasies (Rottig, 2016). These arguments are combined in the conceptual
model shown in Figure 2.
Institutional distance and complexity
The national boundaries between countries are also indicative of economic, social, political,
demographic, geographic, legal and cultural dimensions that differ among countries and
Evaluation of
opportunities for
acquisitions
Figure 1.
Stages of the
acquisition process
Evaluation of a
specific target firm
and conditions
Acquisition
announcement
Management
model and
integration of firms
Completion
or
abandonment
Source: Adapted from Dikova et al. (2010)
Cultural distance
(home-host country)
Regulatory complexity
Technological complexity
(high technology)
The preacquisition
process
H1 +
H2 +
H3 +
Time between
acquisition
announcement
and final
decision
(completion or
abandonment)
403
H4 –
Prior (recent) experience
with local acquisitions
comprise the national institutions (North, 1990; Berry et al., 2010). Institutions exist to
regulate the activities and interactions among individuals, setting the norms, rules, codes,
laws and contracts that guide behaviors (North, 1990). MNCs perceive the institutional
differences on a large spectrum of institutional dimensions that are specific to each country
(Rottig, 2016) in which they operate. It is less likely that CBAs occur between firms from
countries with large institutional differences, because of the perceptions of uncertainties and
risks of expropriation, contracts renounced by governments, legal barriers, specific cultural
dimensions, among other problems (Dikova et al., 2010).
A major facet of institutional complexity for firms pertaining to how countries differ is
related to the cultural identities (Hofstede, 1980; Berry et al., 2010). A number of
characteristics of the countries are rooted in the cultural heritage, including such aspects as
individuals’ and firms’ behaviors, organizational structures, resistance to foreign ownership,
social reputation, transparency and disclosure of information. Morosini et al. (1998), for
example, analyzed how cultural differences influenced acquisitions’ performance, arguing
that cultural distance between countries reveals differences in norms, repertoires, traditions
and folklores, and many aspects of managing. These differences increase the costs and
uncertainties of contracting in CBAs.
In culturally dissimilar countries, such crucial aspects for the CBA as learning about the
target and the specific regulatory framework may be difficult and conflicts may arise.
In sum, cultural differences extend the time, or delay, and effort required to obtain reliable
information, acquire trust, negotiate and mitigate potential post-acquisition conflicts that
may emerge in integrating the firms (Dyer et al., 2004):
H1. The cultural distance between the home country of the foreign investor firm and
Brazil is positively related to the time duration between acquisition announcement
and completion.
In addition to the effect of cultural distance on the delay between the acquisition
announcement and completion, other sources of complexity and uncertainty are likely to
arise. Industry-specific regulatory and administrative barriers may be substantial
institutional hurdles to overcome. Some industries are subjected to greater scrutiny by
the regulatory agencies and may present greater complexity than others. The extent of
regulation varies across industries and countries. For instance, in the USA, the healthcare
and financial services appear among the most regulated (The Economist, 2007). Many
emerging economies rely strongly on their pool of natural resources, for instance, in Brazil
the state-owned oil company – Petrobras – accounts for about 10 percent of the country’s
GDP, the mining industry for about 3 percent, and combined oil and mining represent about
one third of Brazilian exports. These activities tend to endure greater regulation and a set of
Figure 2.
Conceptual model
IJOEM
12,2
404
coercive norms by the regulatory agencies (Baioco et al., 2013). Other highly regulated
industries include the telecommunications, water, forestry and some sectors of agriculture
such as biofuel (energy). Attending to the rules and laws, both international and of the host
country, MNCs may require a longer period of time to formalize the contract (Todeva and
Knoke, 2005).
Environments that are more regulated and administratively more complex create
situations that may inhibit the acquisition (Vermeulen and Barkema, 2001). In designing the
acquisition contract it is necessary to include clauses that deal with, for instance,
the administrative details of the transaction, the legal procedures and the acquisition itself
including knowledge transfer and other components (Dikova et al., 2010). Hence, in more
regulated industries we may expect a longer temporal hiatus between the announcement
and the finalization of the acquisition:
H2. The regulatory complexity of operating in more regulated industries is positively
related to the time duration between acquisition announcement and completion.
Technological complexity
One of the motives pertaining to acquisitions is the access to novel knowledge and
technologies (Vermeulen and Barkema, 2001; Luo and Tung, 2007; Zou and Ghauri, 2008;
Phene et al., 2012). Countries have distinct technological competencies (Anand and Kogut,
1997) that MNCs seek to access and transfer internally among their networks of subsidiaries
(Vermeulen and Barkema, 2001) to augment their pool of competences. Zou and
Ghauri (2008), for instance, argued that when the external knowledge is complementary to
that already held, it will be easier to understand and use. However, much of the knowledge is
tacit, difficult to codify, transfer or absorb (Cohen and Levinthal, 1990; Dyer et al., 2004).
Cohen and Levinthal (1990) noted that in order to learn, MNCs need to have absorptive
capacity – that is, the ability to recognize the value of the knowledge, and then the ability to
apply and commercialize the knowledge.
In CBAs in more knowledge intensive industries, it is likely that evaluation concerns emerge
requiring additional information on the value and transferability of the target firm’s knowledge.
Recognizing, learning and applying will be more complex and uncertain for technologies
unknown to the acquiring firm. Reliable information is thus crucial. The institutional voids,
the opaqueness that characterize emerging economies (Cuervo-Cazurra and Genc, 2008), despite
the substantial pro-market reforms (Cuervo-Cazurra and Dau, 2009; Dau, 2016), raise
uncertainties concerning the quality of the information received. Finding reliable information,
scrutinizing the true value of the resources and reaching an agreement in more complex high
technology, or knowledge intensive, industries is thus likely to require a longer period of time:
H3. The technological complexity involved in the acquisition is positively related to the
time duration between acquisition announcement and completion. Specifically, the
acquisition of high technology target firms will probably have a longer temporal hiatus.
Acquisition experience
The international business literature is abundant in pointing out that firms may develop
a competency in conducting acquisitions (Hayward, 2002; Ferreira, 2007; Phene et al., 2012).
In essence this means that firms that make acquisitions will gradually get better at
evaluating each potential acquisition in what concerns the target firm, the synergies,
but also the many sources of uncertainty. Although each acquisition deal is distinct,
research has shown that firms may benefit from their prior experience undertaking
acquisitions, since they are able to apply what they have learned in one acquisition to the
next (Vermeulen and Barkema, 2001; Barkema and Schijven, 2008). In essence this ability
means that firms develop internal procedures on how to carry out acquisitions, learn how to
interact with local agents, how to transfer internally acquired knowledge, effectively exploit
potential synergies and so forth. Hence, firms may also accumulate a capability of operating
in different countries; that is, they may develop a capability for operating internationally or
in a given foreign country. These are capabilities that accumulate from prior experience
(Hayward, 2002; Phene et al., 2012).
Since each country is distinct, in the context of CBAs this means knowing and
understanding what are the “rules of the game” in negotiating the acquisition, how the
national institutions intervene in regulating economic activity, the impact of the legal
system and so forth. Therefore, to complete an acquisition, firms benefit from a previously
accumulated ability of dealing with acquisitions and knowledge of the specific country.
The larger the experience of the MNC with the host country and with acquisitions, the lower
will probably be the perceived complexities and thus the lower the temporal hiatus between
acquisition announcement and finalization (Dikova et al., 2010). In sum, in the negotiation
stage of the acquisition process, it seems reasonable to suggest that prior acquisition
experience, and especially acquisition experience in the same country, may facilitate the
finalization of the acquisition (Bortoluzzo et al., 2014).
It is important, nonetheless, to note the significant institutional transitions being made
by some emerging economies, and the Latin American countries specifically
(Cuervo-Cazurra and Dau, 2009; Cuervo-Cazurra and Stal, 2011); these are capable of
making the more recent experiences especially useful. That is, older experience in situations
where the institutional milieu changes is not only probably less useful but it also leads firms
into errors. Older experience may actually provide only an obsolete perspective on the host
country and institutions that have since changed, as the pro-market reforms are
implemented. Hence, more important than a general ability to conduct acquisitions in a
given country, it is the recent experience that is likely to matter the most in emerging
economies, shortening the time duration for evaluating and negotiating the terms with the
target firm and/or regulatory agents. Recent experience may consist of up-to-date
knowledge on the current regulations, on who are the best local financial consultants and
legal services firms, the political agents that presently dominate and to whom political ties
are important, or even a less biased understanding of the social and cultural environment
in the host country:
H4. More recent experience with acquisitions in Brazil, in contrast with the older
experience, is negatively related to the time duration between acquisition
announcement and completion.
Method
The hypotheses were tested with data on the CBAs of Brazilian firms by foreign
MNCs – acquisitions involving Brazilian firms as the targets in which the acquirer was not
Brazilian. Data were collected from the Securities Data Corporation Platinum (SDC Platinum)
M&A. This database comprises data on M&A since 1985 involving non-US target firms and
has been widely used in prior studies (e.g. Capron, 1999; Hayward, 2002; Capron and
Guillén, 2009). From the SDC platinum we extracted data on all CBAs of Brazilian firms
from 1985 to 2012. We excluded deals in which the country of origin of the MNC was an
offshore, since it is difficult to identify the actual country of origin of the acquiring firms;
it could even be a Brazilian firm using an offshore to circumvent fiscal and legal barriers.
We also excluded acquisitions where the acquiring, acquired or both were from the financial
industry given the industry specificities (see, e.g. Haleblian et al., 2006). We then selected
only acquisitions of Brazilian firms that had not been reported as rumors or withdrawn by
either the seller or the acquirer. Finally, we excluded deals in which the data set was too
The preacquisition
process
405
IJOEM
12,2
406
incomplete in the variables of interest to our study. With these procedures our final sample
comprised 741 acquisitions between 2008 and 2012. The acquisitions between 1985 and
2007 were used to compute an experience variable.
Variables
The dependent variable was the temporal hiatus, or time period, in days, between the formal
announcement of an acquisition in Brazil and its completion. The temporal hiatus was used
in log form; in some instances the date of announcement was the same as completion we
coded the time as zero. The log was thus computed as log(time) plus one since the log of zero
is undetermined. The descriptives in Table I reveal that of the 741 acquisitions in the
sample, 389 were completed on the day announced, 133 were completed within six months
and 30 in up to one year. Moreover, 182 acquisitions were pending on December 31, 2012
(last day in the data set).
Independent variables
The independent variables were as follows. Cultural distance has been used in international
business research to reflect the differences between countries that may generate uncertainties
in firms’ foreign operations. We measured cultural distance using the Kogut and Singh (1988)
Euclidean distance based on the six cultural dimensions of Hofstede (1980), Hofstede and
Bond (1988) and Hofstede et al. (2010) (data accessed at http://geert-hofstede.com/).
Regulatory complexity was assessed using the investments undertaken in Brazil in a
number of industries including: energy (oil, gas, coal, biofuel, hydropower, biomass and
other renewable), water, mining, telecommunications, and some forestry and agriculture
(mostly related to energy production – biomass, ethanol and biofuel). These are important
activities in the Brazilian economy that, despite the missing objective measures of
regulatory intensity, have a large number of regulatory agencies (e.g. ANATEL, ANEEL,
ANVISA, CNPE, IBAMA, SGSO, ANP and CONAMA). Although all industries are
regulated, it is likely that some are burdened with more scrutiny than others and there are
variations across countries. For instance in the USA, healthcare and financial services seem
to be the most regulated (The Economist, 2007). We used the primary SIC codes of the target
Brazilian firms to determine the industry and the variable was coded dichotomously (1 – if
the target Brazilian firm operated in a highly regulated industry, 0 – otherwise).
Technological complexity was measured observing whether the target was a high
technology firm. This information was extracted directly from the SDC data set that signals
these cases and dichotomized (1 – if the acquired firm was high tech, 0 – otherwise).
We added two variables to assess prior acquisition experience in Brazil. The first
counted the CBAs in Brazil between 1985 and 2007, as provided in the SDC Platinum.
Prior studies have shown that the ability to successfully conduct acquisitions accumulates
Completed
Temporal hiatus (in days)
Table I.
Temporal hiatus
(in days) since
the acquisition
announcement
No.
%
Same day
389
69.6
Up to 180 days (6 months)
133
23.8
Up to 365 days (1 year)
30
5.4
Up to 730 days (2 years)
5
0.9
More than 730 days
2
0.4
Total
559
100.0
Source: Authors’ calculations, data collected from SDC Platinum
Pending (on 31/12/2012)
No.
%
0
13
23
50
96
182
0
7.1
12.6
27.5
52.8
100.0
with experience and should positively contribute to reduce the risks and uncertainties
perceived in an additional acquisition.
The second variable on acquisition experience aimed to identify recent prior experience
with acquisitions in Brazil. This variable was computed as the sum of the acquisitions
undertaken between 2008 and 2012. Recent experience is relevant given the institutional
changes in Brazil. Recent experience should reflect a more current understanding of the
Brazilian institutional setting and contribute to reduce the uncertainties, including an
understanding of the “custo Brazil” (or the added costs of doing business in Brazil).
Control variables
We controlled for the acquirer firm product diversification because it is possible that greater
diversification generates higher uncertainty. This variable was measured using the number
of SIC codes of the acquirer firm, in log form. We also controlled for business relatedness.
Non-related acquisitions tend to be more complex and involve greater uncertainty and
difficulty. Hence, using data collected from the SDC Platinum, we measured diversification
of the core business comparing the four-digit SIC codes of the acquiring and acquired firms’
core business. This was a dummy variable. The official language in Brazil is Portuguese and
among the acquirers only Portugal and Angola have the same official language, but account
for only 17 observations in our sample. Therefore we did not include a control for language,
and for a similar reason did not include historical or colonial ties. The Brazilian colonial ties
are to Portugal. These variables could impact perceptions of risk or uncertainty.
The year of the acquisition announcement was controlled to capture possible year effects
that may emerge from such aspects as public policy changes in regards to foreign
investment support. We included four dummy variables for the years 2009, 2010, 2011 and
2012, using 2008 as the baseline.
The acquirer with high technology was controlled for a dummy variable. This variable
controls for the possible impact of the acquiring firm holding complex technology and
proprietary knowledge that may require greater precautions to avoid unintended diffusion
in the foreign market to the local firms. We coded whether the acquirer is high tech (1) or
non-high tech (0), using the data collected from the SDC that signals these cases.
We included controls for the acquirer country. The GDP in the year before the
announcement, in log form, was collected from the World Bank Development Indicators.
We also included dummy variables to control for the region of the acquirer classified in five
regions: Latin America, North America, Europe, Africa, Asia and Oceania, to control for
unobservable heterogeneity.
We used a Tobit estimation since the distribution of the dependent variable is left censored
at 0. This technique is the most appropriate for these cases of left (or right) censoring.
Results
Table II presents the correlation matrix. The correlations are not especially high and the
collinearity diagnosis (the variance inflation factor) is low and below 3, revealing there is no
multicollinearity.
Table III shows the results of the Tobit regression for the dependent variable time (in log
form). Model 1 includes only the control variables. Models 2-5 include separately each of the
independent variables. Model 6 includes all independent variables.
H1 suggested a positive relation between cultural distance and the temporal hiatus. The
test, in Model 1, however, reveals a negative and significant coefficient ( β ¼ −1.056,
p o0.05), thus denoting the importance of cultural distance, albeit finding that greater
cultural distance between the countries of target and acquiring firms is related to a shorter
temporal hiatus. It is possible that when entering very culturally dissimilar countries, MNCs
engage in greater scrutiny prior to the formal announcement of the acquisition intent.
The preacquisition
process
407
Table II.
Correlations
1
Notes: *p o0.05; **po 0.01
0.204 0.403
0.070
0.067
4
5
6
7
8
−0.034
0.021
0.044
0.012
−0.162** −0.035
1.000
0.085*
9
0.672**
1.000
10
−0.042
0.012
−0.006
0.028
0.008
0.130**
0.005
0.063
0.031 −0.065 −0.063
0.070
0.120** 0.071
0.039 −0.036
0.100** −0.009 −0.111** −0.004
0.006
0.084* −0.090* −0.108** −0.149** 0.176** −0.122** −0.062
0.033
1.000
−0.199** 1.000
−0.222** −0.265** 1.000
−0.240** −0.286** −0.319** 1.000
−0.009 −0.062
0.014
0.064
1.000
0.093*
0.104** 0.013 −0.136** −0.124** 1.000
0.009
0.022 −0.059
0.014
0.054 −0.001
−0.005
0.039
0.058
0.011
0.038 −0.133**
3
−0.095** −0.013
1.000
−0.192**
−0.229**
−0.255**
−0.276**
−0.016
−0.051
0.018
−0.111**
2
0.521 1.575 −0.157** 0.047 −0.079*
0.714 1.654 −0.232** −0.074* −0.044
0.238 0.426 −0.043
0.094*
0.045
0.006
0.548
1.000
0.389
0.005
0.353 −0.008
0.402
0.035
0.423 −0.052
0.424
0.020
0.791
0.226**
2.890 −0.067
3.986
0.071
0.439
0.016
0.192 0.394
1.337
0.185
0.146
0.202
0.232
0.235
12.322
2.571
4.943
0.261
SD
12
13
0.001 −0.018
−0.056
0.061
1.000
0.022
0.282** 1.000
−0.045 −0.021 −0.111**
1.000
11
408
1. Cult. distance
2. Ann. 2008
3. Ann. 2009
4. Ann. 2010
5. Ann. 2011
6. Ann. 2012
7. GDP (log)
8. Time (log)
9. Prod. Diversif.
10. Acquirer
high tech
11. Acquired
high tech
12. Exp. 1985-2007
13. Exp. 2008-2012
14. Regulatory
complexity
15. Diversification
core business
Mean
−0.053
1.000
14
IJOEM
12,2
Model 1
(Constant)
Acquirer prod.
diversification
Acquirer high tech
Diversification of
core business
Announced in 2009
Announced in 2010
Announced in 2011
Announced in 2012
Acquirer GDP (log)
Latin America
Europe
Africa
Asia and Oceania
Model 2
Model 3
Model 4
Model 5
Model 6
16.472**
17.779**
13.720**
16.421**
14.697**
13.177**
0.045
−1.697**
0.052
−1.678**
0.069
−1.630**
0.029
−0.517
0.028
−1.839**
0.042
−0.633
0.186
2.265**
2.194 **
1.625*
−0.433
−1.323**
−0.985
−1.552**
−2.564
0.697
0.279
2.197**
2.225**
1.583*
−0.457
−1.302**
−1.937
−1.880**
−2.670
0.727
0.269
2.351**
2.212**
1.742**
−0.254
−1.156**
−0.563
−1.209*
−2.294
0.744
0.173
2.262**
2.232**
1.617*
−0.418
−1.311**
−0.931
−1.468*
−2.442
0.696
0.179
2.507**
2.355**
1.661*
−0.102
−1.182**
−0.791
−1.351*
−2.209
0.739
0.317
2.516**
2.450**
1.722**
0.071
−0.981**
−1.241
−1.210*
−1.931
0.820
Independent variables
Cultural distance
Regulatory
complexity
Acquired high tech
Exp. 2008-2012
Exp. 1985-2007
67.111
χ2
Log-likelihood
−1,340.712
n
741
Notes: *p o0.05; **p o 0.01
−1.056*
409
−1.021*
1.178*
72.537
−1,337.825
741
The preacquisition
process
71.867
−1,338.171
741
−1.976*
72.911
−1,337.375
741
−0.429*
0.399*
79.306
−1,333.864
741
1.121*
−1.875*
−0.461**
0.380**
95.576
−1,325.107
741
The H2 proposed that larger regulatory complexity would lead to a longer time hiatus.
A positive statistically significant coefficient (β ¼ 1.178, p o 0.05) confirms this relation.
H3 suggested that technological complexity and the time hiatus are positively related, but
a negative and statistically significant coefficient reveals that the relation is contrary to
what we proposed. Thus, greater technological complexity contributes to speeding the
process. A possible explanation is that when acquiring more knowledge intensive firms,
a fast completion of the deal may prevent a greater loss of valuable human resources
(see Dyer et al., 2004). Finally, H4 was tested using two variables of acquisition experience:
first, measuring recent experience (2008-2012) and another to assess older experience
(acquisitions undertaken between 1985 and 2007). The results confirmed H4,
showing a positive and significant coefficient for older acquisition experience
(β ¼ 0.399, p o 0.05) and a negative and significant coefficient (β ¼ −0.429, p o 0.05) for
the more recent experience. That is, older experience is probably more outdated
and lengthens the process, while more accurate recent experience reduces the temporal
hiatus to completion.
Robustness tests
We conducted a number of robustness tests. We included measures of business-level
diversification from the core business comparing the three-digit SIC codes of the acquiring
and acquired firms. We examined diversification, observing the entire portfolio of
businesses of both acquiring and acquired firms. Finally, we conducted similar tests with
the dependent variable – time – as continuous (counting days, rather than in log form), using
an OLS regression. The results remained identical (available from authors).
Table III.
Tobit regression for
the dependent
variable time (log)
IJOEM
12,2
410
Discussion and final remarks
This study delved into one facet of the acquisition process – the temporal hiatus between the
acquisition announcements and completion – to understand the effect of certain external
complexities. The temporal hiatus is likely to impact on the costs and denote perceived risks
that may partly explain the high rates of failure or abandonment post-acquisition that have
been reported (e.g. Dyer et al., 2004). The hypotheses suggested a relation between the
temporal hiatus and a selected group of sources of complexity, and were tested in a sample
of CBAs of Brazilian firms by foreign MNCs.
The study has implications and contributions for theory, managers and policy makers.
For theory, there is clearly a need to better understand the process and the factors that lead
to longer timespans, and higher costs, in evaluating and negotiating acquisitions.
These costs may reach about 6 percent of the total deal value (see Dikova et al., 2010).
By reducing the temporal hiatus it is possible to reduce the costs. In addition, it is relevant to
understand that some factors of uncertainty are related to the institutional milieu, but others
may be found at the micro-level, specific to the firms and the technologies/knowledge
involved. Given the abundance of studies on the effect of holding an acquisition capability,
we need to better grasp the role of this capability under conditions of institutional changes,
such as those occurring in many emerging economies (Cuervo-Cazurra and Dau, 2009).
For managers, an additional implication is the need to understand the barriers that they
may face in undertaking CBAs. While the extant literature has delved into the impact of
institutional differences among countries, more research is needed to understand other areas
where those institutional differences may intervene (see Rottig, 2016). It is possible that
firms develop strategies that incorporate the differences, uncertainties and complexities
found in the foreign markets (Dau, 2016). In this regard, Very and Schweiger (2001) have
noted that when managers lack knowledge they may hire local consultants that are familiar
with the host country’s idiosyncrasies.
For public policy makers, in formulating public policies targeted at promoting inward
foreign investment, this study reveals the relevance of having efficient and effective
institutions. If emerging economies have many institutional voids, there are also significant
efforts underway to improve the institutional setting that will improve the business
environment and make transactions easier. The expected outcome of these pro-market
reforms is a more transparent market, where information is more reliable and the regulatory
framework made more explicit.
Our results show a significant impact of the institutional dimensions on the temporal
hiatus between announcement and completion of the CBAs. However, this effect does not
have a simple interpretation. For example, we found a significant negative effect of the
cultural differences, meaning that the temporal hiatus decreases for MNCs originating from
more distant countries. This is surprising, but the large majority of the acquisitions in Brazil
originate in either the USA or Europe, and not from the neighbors of South and Central
America or from other emerging economies that could share a broader ability to operate in
inefficient institutional environments.
Acquisitions in more regulated industries entail complexities that extend the time needed
to completion. In this respect García-Canal and Guillén (2008) argued that firms operating in
more regulated industries, on one hand avoid countries with high levels of macroeconomic
uncertainty and, on the other, expand to countries usually classified with high-policy risk,
or countries where the governments have high discretionary power, where the firms are able
to negotiate favorable conditions (see also Rasiah et al., 2010 on the role of the government in
emerging economies, and DuBois and Primo, 2016 on state capitalism). In a complementary
perspective, Jiménez et al. (2014) argued that some firms may have a capability of dealing
with political risk and are able to execute political actions (e.g. donations to campaigns,
lobbying, etc.) to negotiate better conditions of entry. These firms will thus face lower
institutional uncertainty and complexity than could be anticipated and have an advantage
in investing in politically risky countries. This effect, according to Jiménez et al. (2014) is
especially relevant for MNCs operating in more regulated industries that require more
interactions with the host country’s agencies.
The acquisitions of high technology firms, contrary to hypothesis, seem to be quicker to
complete. Perhaps in these cases the acquiring firms dedicate more time evaluating possible
targets prior to the formal announcement of the acquisition. Additionally, it is possible that
this relation is specific to the Brazilian context, in which despite a few excellent high tech
firms (such as Embraer) these cases of excellence are more the exception than the rule. It is
likely that most CBAs in Brazil are of the market-seeking type, albeit some foreign MNCs
may seek to learn and transfer internally the new technologies acquired in Brazil. Finally,
this effect may be purposeful in that acquirer firms seek to speed up the process to avoid a
status of instability that may lead to a loss of valuable human resources (Dyer et al., 2004).
Prior recent experience with acquisitions decreases the time duration from announcement
to completion. This is an important contribution to the literature, revealing that more
important than the track record of acquisitions, it is the recent experience with undertaking
acquisitions in the country that matters. This result complements the extant literature on the
effect of an acquisition capability but especially when the institutional environment is in flux.
That is, this effect may be due to Brazil being an emerging economy that has been
implementing several institutional changes and undergoing an economic and social
transformation (Cuervo-Cazurra and Stal, 2011). Hence, the more recent experience contributes
to better understand the current development of the institutional environment, reducing the
temporal hiatus between announcement and completion. Conversely, older experience is a
source of barriers that extend the temporal hiatus.
Limitations and future research
This study has some limitations; first, there are limitations due to the data available. Although
often used in the extant research, the SDC Platinum data set is incomplete on the firms and
details of specific transactions. These gaps are more profound when the acquisitions involve
non-US firms. For instance, we lack data on firms’ size and deal value. Thus, future studies
may seek to examine the impact of other sources of complexity using other data from
complementary sources, or using dedicated surveys to assess more in-depth, for instance,
what were the complexity factors perceived by managers.
Another limitation is that we only had access to data on the acquisitions of Brazilian
firms. However, understanding the sources of institutional complexity and firms’ level
effects may be promoted in studies involving multiple countries. Institutional and
technological complexities are better captured with larger and more diverse samples.
Similarly, a larger sample may permit capturing effects of acquisition experience in other
territories, thus building a global acquisition capability.
Future research may expand on the impact of other sources of complexity, either at the
country level (specifying institutional characteristics), at the business level (unrelated
acquisitions may involve more complexity), or at the level of the technology (MNCs may
react differently when protecting proprietary technologies that are the foundation of their
competitive advantage). Possibly such studies are better executed with primary data and it
may be relevant to conduct interviews with top executives or CEOs to understand how they
identify and monitor the different sources of complexity.
To conclude, we have observed an overlooked and under-researched stage of the CBA
process that occurs prior to the completion of the deal. Grasping the difficulties that take
place in this stage may help understand the future longevity of the acquisition in the
acquiring MNCs’ portfolio of businesses. By understanding the complexity factors that
may emerge, it is possible for managers to act to reduce the costs and risks of a longer
The preacquisition
process
411
IJOEM
12,2
412
temporal hiatus. Hence, this study entails a valid contribution for research on CBAs, but
there are many unanswered gaps for future researchers to scrutinize. Researchers could
investigate why acquisitions are the strategies for domestic and international expansion
more used by firms even when expanding to, for instance, emerging economies or economies
in Latin America where they may face greater hazards.
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Corresponding author
Manuel Portugal Ferreira can be contacted at: manuel.portugal.ferreira@gmail.com
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LEADERSHIP FORUM
Acquisition Leadership for the Future
BY IRIS B. COOPER
After over 25 years in
federal acquisition, I
discovered a new “low”
in a recent Nextgov
article, “Consultant Lists
DHS’ Most (and least)
annoying Contracting
Officers,” from May 2014.
The idea that vendors will now “blacklist” U.S.
federal government contracting officers based
on their numbers of solicitation modifications or schedule slippages is beyond
pathetic. It is also a clear indication that the
consultant in this case doesn’t understand
the federal acquisition process. More appalling is the fact that we as the senior acquisition leadership in government did not react
to this at all. What message did that send to
our contracting workforce? Have we really
become numb to these personal attacks?
While we have been talking about transparency, collaboration, and innovation, our actions negate those great concepts. For every
significant mistake or highly visible mistake,
we have “over-corrected” the situation. I am
not advocating that those who have violated
procurement and ethics rules not be held
accountable—quite the contrary, in fact. The
problem is that we punish the entire community as well. Remember the conference
scandals of various agencies over the past
few years? Who was really held accountable?
Those who were directly responsible were, for
certain; but the rest of the workforce was as
well. The result is that conferences and training events are “bad” and we would rather
forego good training opportunities than give
the wrong perception.
8
Contract Management | September 2014
We have layered more regulations and oversight over the already existing regulations
and oversight and attempted to “fix” all
wrongs with a broad brush. In response to
the ever-increasing requirements and oversight, our “craft” has been oversimplified by
turning every transaction into “contracting
by template.”
We have become so obsessed with metrics
to “drive performance” that we have lost
focus on the quality of the performance
outcomes. Measuring progress is important,
but meaningful outcomes should be the end
goal. And, when metrics become punitive,
we get undesired outcomes.
Newsflash: What we have been doing has
not produced meaningful results or better
business outcomes in the acquisition arena.
The actions we have taken are stifling creativity, innovation, and business outcomes.
We, the government acquisition leadership,
must stand up and create an environment
where our acquisition workforce is encouraged to tell us what we “need” to hear, not
what we “like” to hear. We must create an
environment where appropriate risk-taking
is supported without fear of retribution. We
need to set a strong example and provide
the guidance and support that is expected
from leadership. Along with that, we must
have the courage to hold accountable those
that fail in spite of being given the opportunities, training, and guidance. We simply
can no longer afford to lead to the lowest
common denominator. We must rebuild the
trust within our acquisition community to
actively collaborate for better outcomes.
The possibilities are endless, but without strong leadership, we risk losing this
workforce and the government’s ability to
effectively execute its mission. Our newer
workforce (those with one to three years on
the job) does not see the need for stability, predictability, and security that drove
most of our more-established workforce to
remain federal employees. They want to
contribute; they want to be inspired; they
want to use technology to its full potential;
they are collaborative; they are transparent;
and they want to innovate! They also have
no problem moving on!
We need to manage “forward” if we truly
want to create a successful future for this
profession. The lessons from the past few
years are not good indicators for the future
and for what we need to be.
After over 25 years in contracting, I am
still passionate about this career field, the
endless possibilities in finding the best
business solutions, and contributing to the
government’s mission. I believe in what I do.
I also know that my best work was done in
environments where my leadership allowed
me to use creative solutions, take some calculated risks, and sometimes even fail. CM
ABOUT THE AUTHOR
IRIS B. COOPER is the senior procurement
executive for the U.S. Department of the
Treasury.
Send comments about this article to
cm@ncmahq.org.
Reproduced with permission of the copyright owner. Further reproduction prohibited without
permission.
World Congress 2016:
MAKING INNOVATION IN
FEDERAL CONTRACTING
A REALITY
BY JAIME
GRACIA
INNOVATION WAS ONE OF THE KEY
TOPIC AREAS AT NCMA’S WORLD
CONGRESS 2016 IN ORLANDO.
Today, both industry and government continue to struggle with
the entire life cycle of awarding and administering federal contracts. Although innovation in such areas as technology is easy to
see and comprehend, the federal acquisition process is a different
discipline that continues to have difficulties in this regard. Many
factors have been cited, and have led to a dearth of “acquisition
reform” initiatives and discussion areas—particularly in the last
decade.
As discussed at World Congress, and reported by Federal News
Radio, However, some of the fundamental ways people in the contracting function can “innovate” really stem from following best
practices and with a collaborative approach to communications
and requirements building:
Both federal and state officials agreed, the best way [to innovate] is
to wiggle in with program people early in the acquisition cycle so that
contracting officers know exactly what it is the program needs or is trying
to do. Rosalyn Ingram, the top purchasing official for Florida, said that
her shop brings in the largest or leading users of a product or service so
contracting can find out what they really needed. She cited the example
of “canteen services” requested by the state’s prison authority. “We don’t
There are some pockets of excellence in best practices across
government, such as the use of “agile” methodologies. This is being done at the Centers for Medicare & Medicaid Services (CMS),
with the solicitations for PECOS and DEX.3 Instead of the typical
100-page request for proposals, CMS issued a simple statement
of objectives, and instructed offerors to provide the performance
work statements, quality assurance surveillance plans, and the
vast majority of the documentation that will form the basis of the
contract and how the winning contractor will actually perform the
work.4 This technique is the foundation for performance-based
contracting, and something that I advocate should be used more
often. Government should focus on its outcomes, and let industry
devise solutions to meet them. CMS is allowing industry to innovate, and use best practices to solve government problems. Isn’t
that what we all want in the end?
This and similar techniques are not new, but they are rarely used
because the risks are seemingly too high, and not being able to
compare “apples to apples” in the selection process is a constant
fear. These issues must be overcome, and leadership needs to
provide the tools and ability to make this happen.
Nonetheless, I am hopeful that other organizations across government will allow these techniques to flourish. Innovation in acquisition is not really about doing something new, but perhaps doing
something different, and following established rules to improve
efficiencies—and thus outcomes. CM
know anything about canteen services,” Ingram said, so she had her staff
invite the prison people in to discuss their requirement.1
These are things that should be done as a matter of course. However, the strained relationship that often exists between contracting shops and requirements offices, not to mention between
industry and government in general, has led to poor requirements,
and thus poor outcomes.
Further discussed was the introduction of risk, and the risk-averse
nature of government. Although this is certainly a paralyzing
reality, getting back to basics is how innovation will happen. Iris
Cooper, senior procurement executive at the Treasury Department, and Tracy Marcinowski, director of acquisition policy at the
General Services Administration, presented on this topic in their
discussion titled “We Found the Enemy and It Is Us!”2
ENDNOTES
1. Tom Temin, “How to Innovate in Federal Contracting,” available at http://
federalnewsradio.com/acquisition/2016/07/innovate-federal-contracting/.
2. Available at www.ncmahq.org/docs/default-source/default-document-library/
presentations/wc16/wc16---b11---we-found-the-enemy-and-it-is-us.pdf.
3. See https://pecos.cms.hhs.gov for more information.
4. The original sources sought can be found on FedBizOpps at https://www.fbo.
gov/index?s=opportunity&mode=form&id=51bedc3bb9750a3c08246a64f687
97b8&tab=core&_cview=0.
ABOUT JAIME GRACIA
U.S. federal government contracting and procurement expert
President and CEO, Seville Government Consulting LLC
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Contract Management ∕ October 2016
31
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Citations:
Article #1
Ferreira, M. P., Borini, F., Vicente, S., & Almeida, M. R. (2017). The pre-acquisition process.
International Journal of Emerging Markets, 12(2), 400-414. Retrieved from https://searchproquest-com.ezproxy1.apus.edu/docview/1895188125?accountid=8289
Article #2
Cooper, I. B. (2014, 09). Acquisition leadership for the future. Contract Management, 54, 8. Retrieved
from https://search-proquest-com.ezproxy2.apus.edu/docview/1566186651?accountid=8289
Article #3
Gracia, J. (2016, 10). World congress 2016: MAKING INNOVATION IN FEDERAL CONTRACTING A
REALITY. Contract Management, 56, 31. Retrieved from https://search-proquestcom.ezproxy1.apus.edu/docview/1838681745?accountid=8289
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