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Innovation Through Acquisition

Roger Martin, dean of the Rotman School of Management, talks about the potential pitfalls and rewards of trying to "buy" innovation

Despite gathering storm clouds over Wall Street, global mergers-and-acquisitions activity reached record proportions last year. A string of landscape-shifting deals have been spilling over into the first months of 2008. The worth of worldwide megamergers and acquisitions in industries ranging from automobiles to video games was up 23% last year to $4.8 trillion, according to market researcher Dealogic. Even with a slowing economy, American M&A deals were up 3%, to nearly $1.6 billion, in 2007.

Acquisitions are often efforts to "buy" innovation, folding in a so-called disruptive, or game-changing, technology developed by another firm. Or they represent attempts to bring in a staff known for its consistent and profitable creative output. Indeed, earlier this week, analysts widely interpreted video game giant Electronic Arts' (ERTS) gambit to acquire Take-Two Interactive Software (BusinessWeek.com, 2/25/08) as an attempt to gain control of Take-Two's (TTWO) blockbuster Grand Theft Auto franchise. And Microsoft's (MSFT) recent $44 billion megabid (BusinessWeek.com, 2/1/08) for Yahoo! (YHOO) is a last-ditch hedge against Google (GOOG), which has managed to innovate circles around the two tech titans.