The Role of Geographic Distance in Acquisition Target Selection

How does the geographic distance between potential acquiring and target firms affect acquisition strategy? Although popular discussions suggest that distance may be critically important to strategy, formal research on acquisition-based growth has paid little attention to spatial factors. This study examines how the distance between acquiring and target firms influences target selection, exploring conditions under which acquirers exhibit a greater preference for geographically proximate targets and when they are willing to seek more distant targets. Studying 2,476 domestic acquisitions by 847 US chemical manufacturing firms founded after 1979, we find that acquiring firms preferred geographically proximate targets, and that this preference was stronger when firms implemented related acquisitions or when target firms were larger than acquirers. By contrast, we found no evidence that firms with greater prior acquisition experience were less sensitive to distance. The results suggest that acquisition managers perceive greater costs for implementing geographically distant acquisitions, particularly when acquisitions would involve greater post acquisition integration effort. In turn, the study shows that distance has long-standing effects on firm strategy that experience does not overcome.