Unique Bidder-Target Relatedness and Synergies Creation in Mergers and Acquisitions
68 Pages Posted: 1 Oct 2018 Last revised: 13 Oct 2021
Date Written: March 18, 2019
We examine the effect of the uniqueness of bidder-target relation, i.e., the number of firms that share the bidder-target relation, on merger synergies. We use machine learning tools to measure unique bidder-target relatedness and find that unique relatedness is associated with a much larger increase in merger synergies than non-unique relatedness. The measure of unique relatedness mostly captures product relatedness, and the measure dominates alternative product relatedness measures in predicting merger synergies. Analysis of the acquirer’s post-merger operating performance shows that the unique relatedness creates synergies through enhanced operating efficiency rather than an increase in investment or revenue.
Keywords: Distinct Relatedness, Synergies, Mergers and Acquisitions, Conditional Dependence, Lasso, Stock return comovement
JEL Classification: G34, G30
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