Product Market Synergies and Competition in Mergers and Acquisitions: A Text-Based Analysis

48 Pages Posted: 7 Aug 2008 Last revised: 18 Aug 2011

Gerard Hoberg

University of Southern California - Marshall School of Business

Gordon M. Phillips

Tuck School of Business at Dartmouth; National Bureau of Economic Research (NBER)

Date Written: February 24, 2010

Abstract

We examine how product similarity and competition influence mergers and acquisitions and the ability of firms to exploit product market synergies through asset complementarities. Using novel text-based analysis of firm 10-K product descriptions, we find three key results. (1) Firms are more likely to enter mergers with firms whose language describing their assets is similar. (2) Transactions in competitive product markets with similar acquirer and target firms experience increased stock returns and real longer-term gains in cash flows and higher growth in their product descriptions. (3) These gains are higher when the target is less similar to the acquirer's closest rivals, and when firms have the potential for unique products. Our findings are consistent with firms merging and buying assets to exploit synergies and to create new products to increase product differentiation.

Keywords: Mergers, Product Markets, Text Analysis, Merger Strategies

Suggested Citation

Hoberg, Gerard and Phillips, Gordon M., Product Market Synergies and Competition in Mergers and Acquisitions: A Text-Based Analysis (February 24, 2010). Available at SSRN: https://ssrn.com/abstract=1181022 or http://dx.doi.org/10.2139/ssrn.1181022

Gerard Hoberg (Contact Author)

University of Southern California - Marshall School of Business ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~hoberg/

Gordon M. Phillips

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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