Valuation of Private, Innovative Targets: Evidence from Cisco’s Acquisitions

Working Papers
Mangipudi, Chandrasekhar., Subramanian, Krishnamurthy., Vasu, Rajkamal. "Valuation of Private, Innovative Targets: Evidence from Cisco’s Acquisitions", Hyderabad, India
We study how the value paid for private, innovative targets is affected by its knowledge-related intangible assets. We use unique data from Google Patents for the targets acquired by serial acquirer Cisco. We minimize bias in estimates of the value paid by comparing across deals undertaken within the same year by an acquirer that represents the “gold standard for M&A practices.” We find that acquirers pay for the target’s (i) intellectual property rights, (ii) expertise/technology especially that overlapping with the acquirer’s, and (iii) employees’ human capital. Ours is the first study to examine the value paid for knowledge-related intangible assets in mergers and acquisitions.