Trade Relationships, Indirect Economic Links, and Mergers

Abstract

The economic links between firms created by customer and supplier relationships are critical determinants of those firms’ values and actions. We demonstrate that significant trade relationships and indirect economic links incrementally explain which firms are more likely to be involved in acquisitions, which pairs of firms are more likely to merge, and which mergers will have the greatest impact, both on value and in motivating follow-on mergers by rivals. Firms with major trade relationships are significantly less likely to acquire, or be acquired, by firms that do not share in those relationships.

Keywords: Mergers & Acquisitions, Product Market, Horizontal, Vertical, Supply Chain, Rivals

JEL Classification: G34, G30, L22