Human Capital, Shared Expertise, and the Likelihood of Impasse in Corporate Acquisitions

Human capital often cannot be acquired in efficient labor markets due to poor information or firm-specific skills that develop over time. Since such knowledge may be critical to firms building a strategic capability, it is not surprising that many acquisitions occur in human capital-intensive industries. Yet, the uncertainty associated with human capital increases the risk of overbidding. If the buyer bids conservatively, the target may reject the offer or rival bidders may emerge. In contrast, aggressive bidders may need to back out of the transaction if due diligence reveals unanticipated risks. Either way, impasse is more likely for targets in human capital-intensive industries. This study explores whether a shared expertise mitigates these hazards. Findings suggest that similar expertise is particularly important when acquiring human capital-intensive targets. Transactions involving unrelated buyers of such targets are less likely to close. This has implications for diversification theory and the resource-based view.