An Empirical Study of Software Companies’ Merger and Acquisitions in the Software-as-a-Service Market

Abstract

This study examines the herding behavior of software companies when they merge and acquire (M&A) SaaS firms to compete in the market. Through an empirical analysis of 71 companies in SIC 737 industries from 2003- 2017, we find that firms try to imitate their peer competitors’ M&A activities and their imitation decisions are contingent on the resources and capabilities. Specifically, firms with more slack resources are more likely to develop SaaS products and services by themselves instead of acquiring an existing SaaS firm. Creating their own SaaS products could bring more stable and reliable profits in the long term, even though firms may have low profit margins in the short term. Thus, these firms do not consider acquiring the developing process through M&A. Our findings have managerial implications for on-premises companies in their transformation to cloud-based businesses.