Resource and Skill Transfers in Subcontractor SME Acquisitions: Influence on the Long‐Term Performance of Acquired Firms

• DOI: http://doi.org/10.1111/emre.12014
• Author: Catherine Thévenard‐Puthod,Véronique Favre‐Bonté
• Published date: 01 September 2013
• Date: 01 September 2013

Resource and Skill Transfers in

Subcontractor SME Acquisitions:

Influence on the Long-Term Performance

of Acquired Firms

Véronique Favre-Bonté and Catherine Thévenard-Puthod

IREGE, Université de Savoie, Annecy-le-Vieux, France

This paper investigates the link between resource and skill transfers and the long-term performance of acqui-

sitions. Rather than taking the more common acquirer’s perspective, this research emphasizes the point of view of

the acquired firm and focuses on a little-studied type of business, namely, small and medium-sized subcontractor

firms. Through 14 case studies of subcontractor acquisitions, we show that those acquired firms can improve their

long-term performance in terms of turnover, profitability, number of employees and reduced dependency, if they

receive certain types of new resources and skills from acquirers. Particularly, post-acquisition performance is

more closely related to the transfer of managerial and functional skills than to operational resources. Three factors

(e.g., geographical, business and cultural proximity) also help facilitate some types of transfers. However, the

degree of post-acquisition integration does not play a key role in those transfers.

Keywords: acquisition; resource transfer; skill transfer; small and medium-sized enterprises; subcontractors;

performance

Introduction

Acquisition performance is a recurrent theme in stra-

tegic management research (Zollo and Meier, 2008;

Haleblian et al., 2009). Yet most studies examine the

acquirer’s point of view or combine both firms’ perspec-

tives (Capron and Hulland, 1999; Ahuja and Katila,

2001; Capron and Pistre, 2002; Cloodt et al., 2006); the

acquirer’s perspective may seem more important, in the

sense that being acquired is a signal of weakness or

failure (Graebner and Eisenhardt, 2004). Although

research has considered a firm’s capacity to choose

whether and by whom it will be acquired (Graebner,

2004; Graebner and Eisenhardt, 2004; Dalziel, 2008),

few studies have explored the acquired firm’s side of the

story (Bandick and Görg, 2010). However, acquirer and

acquired firms may differ in their assessments of acqui-

sition performance, such that ‘one party could consider

an acquisition successful while the other views it as

disappointing’ (Graebner et al., 2010: 77). For example,

owners who sell their companies are often concerned

about their longevity, especially when the companies are

family-owned, small and medium-sized enterprises

(SMEs). To preserve their employees’jobs, maintain the

know-how and culture of their firm, and nurture good

relationships with customers and suppliers (Uzzi, 1997;

Dalziel, 2008), they tend to choose an acquirer carefully

(Kets de Vries, 1988) and attend to the performance of

the firm even after its acquisition (Graebner et al., 2010).

The long-term performance of acquired firms has also

become a major concern of public institutions in many

Western countries, because the demographics of owner-

managers1and the relatively high failure rate of acqui-

sitions raise both economic and social issues (Calogirou

et al., 2011). Even when a selling firm no longer exists as

an independent legal entity, it can still be analysed as an

acquired unit, especially if its post-acquisition integra-

tion into the acquirer is low and it retains a high level

of autonomy. In such a scenario, we could appraise

acquisition performance in terms of the long-term

Correspondence: Catherine Thévenard-Puthod, IREGE, Université de

Savoie, chemin de Bellevue, BP 80439, 74944Annecy-le-Vieux Cedex,

France. E-mail: catherine.puthod@univ-savoie.fr

1Each year, business transfers in the EU 27 due to the age of firm

owners affect 450,000 firms and 2,000,000 employees

(Calogirou et al., 2011).

European Management Review, Vol. 10, 117–135 (2013)

DOI: 10.1111/emre.12014

© 2013 European Academy of Management

performance of the previously separate entity (Dalziel,

2008).2

Prior research has emphasized the role of resource

and skill transfers in the performance of acquisitions

(Haspeslagh and Jemison, 1991; Bresman et al., 1999;

Larsson and Finkelstein, 1999; Ranft and Lord, 2002;

Stahl and Voigt, 2008), yet sufficient knowledge

about such transfers is lacking (Haleblian et al., 2009).

Empirical work is essential to address the link between

transfers and post-acquisition performance using non-

financial measures and to examine long-term evaluations

and strategic measures (King et al., 2004; Laamanen and

Keil, 2008; Haleblian et al., 2009) to reveal firms’ future

potential (Cording et al., 2010). Consequently, we

explore the impact of resource and skill transfers on the

acquired unit’s long-term post-acquisition performance,

using a resource-based view of the internal sources of a

firm’s sustained competitive advantage (Barney, 1991;

Kraaijenbrink et al., 2010). An acquirer can obtain valu-

able, rare, inimitable and non-substitutable resources

from an acquired unit (Wernerfelt, 1984; Haspeslagh

and Jemison, 1991; De Man and Duysters, 2005); in

turn, the resources and skills an acquired firm possesses

might be enhanced during the integration process if it

receives resources and competences from the acquirer

(Morosini et al., 1998; Stahl and Voigt, 2008). This

prediction seems particularly apt for SMEs, especially

subcontractors,3which often suffer from a structural

deficit of resources and skills (Alvarez and Barney,

2002). Therefore, we investigate the link between

resource and skill transfers and the long-term perfor-

mance of an acquisition, from the acquired subcontrac-

tor firm’s point of view. In particular, we address the

following research questions: What resources and/or

skills are most important to ensure the long-term perfor-

mance of an acquired subcontractor SME, and which

types of factors facilitate those transfers?

We focus on small subcontractor firms for four main

reasons. First, it is easier to determine the effects of

resource and skill transfers for smaller firms. Second,

these subcontractors often need additional resources and

expertise to improve their competitiveness and manage

their situation of dependence in relation to their princi-

pal (Wilson and Gorb, 1983; Radway et al., 2011).

Third, subcontractors represent a critical part of the

economies of many industrialized countries (12% of

value added in Portugal, 9% in France, 8% in Germany

and 6% in the United Kingdom; Eurostat, 2009). Fourth,

to our knowledge, few studies have examined these

firms, even though they are prime targets for acquisitions

(Quah and Young, 2005). To explore which types of

resource and skill transfers play a key role in the long-

term performance of an acquired subcontractor firm,

given the lack of prior theory and empirical work on

these topics, we adopt an exploratory, partially inductive

research design, based on a multiple case study

approach. We analysed 14 acquisition cases of subcon-

tractor SMEs in the automotive industry. Unlike most

studies of skill transfers in acquisitions (Capron et al.,

1998; Capron and Hulland, 1999), we focus on not only

horizontal acquisitions but all types of buyers. That is, a

subcontractor can be bought by a competitor, but it also

might be acquired by a customer, supplier, or company

from another industry.

We begin by presenting our analysis framework,

developed from a resource-based view of acquisitions,

together with our case study methodology. We then

describe the types of resources and skills transferred to

the subcontractor SMEs in our sample after acquisition

and their effects on the firms’ long-term post-acquisition

performance. Despite their loss of autonomy, acquired

firms can benefit from acquisition, provided they receive

new resources and skills from their acquirers. Although

post-acquisition performance may be linked to the

amount of resources and skills transferred, it also may

relate to the types of transfer, such as functional and

managerial skills rather than operational resources.

Finally, we discuss key facilitators of resource or skill

transfers.

Literature review: analysis framework

Performance of acquisitions, from the acquired firm’s

point of view

Unlike large companies, in which management and

ownership are separated, many SMEs belong to single

owner-managers or families with a controlling stake in

the company that may have founded or inherited the

firm.4This connection influences their corporate objec-

tives, which are often confused with the personal goals

of the firms’ leaders or families. Acquisition in this

setting is nearly always a process of mutual agreement

between a potential acquirer and a seller,5rather than a

2Indirectly, the performance of the acquired entity also affects

that of the acquirer.

3Subcontractors differ from first-tier supplier or equipment

manufacturer. An equipment manufacturer is commercially and

technically responsible for its products. The subcontractor is

itself a contractor; its activity is subordinate to that of the prin-

cipal, and it must meet the technical specifications required by

the principal.

4Family businesses are the dominant form of organizations

worldwide (Churchill and Hatten, 1987; Shanker and Astrachan,

1996). In 2003, they represented 93% of companies in Italy,

80% in Greece, 70% in Belgium and 60% each in France and

Germany (IFERA, 2003). In the United States, they represented

90% of companies (Ibrahim and Ellis, 1994).

5We use the term ‘seller’ to refer to the owner-manager of the

SME; it becomes an ‘acquired firm’ or ‘acquired unit’ after the

deal is concluded.

118 V. Favre-Bonté and C. Thévenard-Puthod

© 2013 European Academy of Management