Knowledge exchanges, trust, and secretive geographies in merger and acquisition processes

Abstract

Our current understanding of knowledge generation over geographical distance relies heavily on studies that focus on producer–user or headquarter–subsidiary settings. Less attention has been paid to the geographical particularities of knowledge exchanges in mergers and acquisitions, which involve high costs and an extraordinary degree of risk and uncertainty with potentially significant (positive or negative) consequences for the respective firms and regions alike. To keep the risks associated with such complex long-distance transactions at bay, buying firms strongly depend on robust knowledge about the structure and value of the target units while the sellers require reliable knowledge about the goals of the acquisition and the price the buyer is willing to pay. This paper aims to investigate the spatiality of related knowledge exchanges during merger and acquisition procedures by analyzing the role of face-to-face contacts and investigating the mechanisms to establish trust in undertaking such risky endeavors. Our empirical analysis focuses on national and international corporate acquisitions and takeovers involving firms located in Germany. It is based on semi-structured in-depth interviews with actors involved in mergers and acquisitions, conducted since 2012. We distinguish between the two extremes of relational and auction-based merger and acquisition procedures and systematically analyze in a process perspective (a) the conditions under which knowledge is exchanged over distance, (b) the importance of temporary proximity and how secretive geographies of meetings evolve, and (c) the ways in which trust is created and uncertainties are reduced.