Shopping as locals: A study of conduit acquisition by multinational enterprises

Foreign acquirers often encounter severe legitimacy challenges caused by the institutional distance between the home and host countries. In this study, we propose that conduit acquisition, in which an ultimate acquirer initiates a cross-border acquisition through one of its majority-owned subsidiaries already located in the host country or countries similar to the host country, can be used as a strategic response to institutional distance. Invoking institutional theory, we argue that the local presence of the conduit acquirer can help the ultimate acquirer interpret and meet the legitimacy requirements in the host country. This effect is weaker if an ultimate acquirer has alternative sources of legitimacy and is stronger if the acquisition triggers larger legitimacy concerns. Our empirical analyses of 6365 cross-border acquisitions in the United States from 2000 to 2016 support our hypotheses. We further find that conduit acquisition indeed lowers the deal failure rate and reduces the time to completion. By highlighting the organizational structure of cross-border acquisitions, this study points to a new strategic option for multinational enterprises.