The effect of customer asset strategies on acquisition performance in business-to-government markets

Firms operating in business-to-government (B2G) markets rely heavily on mergers and acquisitions (M&As) to achieve growth. However, the performance implications of M&As in B2G markets are unclear, due to its unique regulatory environment. Leveraging in-depth interviews and secondary data pertaining to 422 B2G M&As, between 2001 to 2017, this study uncovers a critical, previously unexplored driver of acquisition performance, in the form of two customer asset strategies: government customer penetration (i.e., acquire a firm with shared customers) and government customer expansion (i.e., acquire a firm with new customers). The findings indicate positive abnormal returns for customer expansion but negative returns for penetration as investors value access to new revenue sources, i.e., new customers, more than they do improvements to efficiency and increases in existing revenue streams. The authors also identify two moderating effects related to firm offerings (i.e., target’s relative service focus) and budgetary environment (i.e., government customer growth).