Technological powerhouse or diluted competence: techniques for assessing mergers via patent analysis

On a daily basis, we are bombarded with the news of yet another mega-merger. The business press generally greets these announcements with breathless projections based on extrapolations of combined sales, earnings, and R&D spending, with little emphasis on whether the merged companies will be worth the sum of their parts. In this paper we examine patent analysis techniques for evaluating the technological strength of merger candidates, and explore the notion that the technological quality of the merged company may be diluted rather than enhanced. We will also use patent analysis methods for examining the market value of companies, to determine whether a merger target is over- or under-priced. We will explore all of these techniques within the context of a case study of the proposed merger between Glaxo-Wellcome and SmithKline Beecham, although the techniques can be readily applied to any merger within an R&D intensive industry.