Digital Competition and the market for corporate control :a theoretical study on how digital competition affects the market for corporate control

Abstract

Mergers and acquisitions are a fundamental part of the corporate world. This is also the case for digital companies. How the competition in the digital market affects the acquisition patterns of digital companies is a relatively unexplored topic, making it highly interesting to research. This thesis aims to analyze how the market for corporate control for digital companies is affected by the digital competition. From an analysis of the implications of digital competition on the market for corporate control, we find that the digital competition causes a higher number of acquisitions. In which there is an apparent tendency to acquire a firm in the early stages of its life cycle. Consequently, increasing the incentives to establish new innovative companies as the acquirers are reliant on innovation through acquisitions. Furthermore, we find profitability to be secondary to growth, making variable cost synergies less relevant for digital acquisitions. We assess the acquisition history of four digital companies: Alphabet, Amazon, Apple, and Facebook. Observing that the companies acquire innovative companies to obtain innovation, with a focus on intangible resources like human capital. In the final part of the thesis, we predict that the digital incumbents will develop into conglomerates as a result of current acquisition and expansion strategies. Additionally, the digital incumbents are likely to create incubators to improve the research and development and reduce dependency on external innovation. In turn, reducing the premiums in the market for corporate control due to the reduced acquisition activity of the Big Four. Finally, we find that in the markets of which the digital companies wish to expand, digital competition will ensue. Resulting in the market for corporate control within said markets to function similarly to that in the digital market.