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Title The Relationship between M&A and Innovation
Author Gu Sang Kang
Date 2019-08-12
File KIEP opinions_no168.pdf 

M&As have been used as one of the most preferable strategies for firm growth. However, the motivations for M&A have changed mainly because the nature of technologies is changing. Due to the complicated nature of the latest technologies such as IoT and AI, as well as their rapid pace of change, firms acquire innovative startups that already deal with the cutting-edge technologies like Google's acquisition of DeepMind or Facebook's purchase of WhatsApp. The implications of these M&As are two-fold. First, by acquiring firms with high-skilled experts, existing firms can save the time and costs necessary not only to educate workers lack of technological background but also to catch up with cutting-edge and promising businesses. Second, acquiring innovative firms with diverse technologies and services can attract more customers, meaning this could be the best strategy for existing digital platform firms seeking profit-maximization through innovation due to network effects. Therefore, it is a good option for firms to acquire innovative companies in order to achieve long-run growth based on continuous innovation.