When do firms of a feather find each other? Asymmetric preferences for (dis)similarity in the quality of human capital resources in professional service firm acquisitions

We study how the (dis)similarity in the quality of human capital resources between acquirers and potential targets influences the choice of which firm to acquire. Specifically, we assess under which conditions acquirers prefer dissimilar over similar targets. Based on an analysis of domestic acquisitions between professional service firms in the Netherlands we find that the distance in the quality of human capital resources between acquirer and a potential target, proxied by the absolute difference in average wages, lowers the probability of target selection, revealing the acquirer’s general preference for similarity. This preference is greatly influenced, however, by the acquirer’s ability to attract and retain employees. The ability to attract and retain employees shifts acquirers’ preferences towards higher quality targets and away from lower quality targets. Based on these findings we discuss implications for the M&A literature as well as the human resource literature.