Finance Seminar（2015-03）

Topic: Complementarities in Mergers and Acquisitions

Speaker: Evgeny Lyandres, Boston University

Time: Wednesday, 18 March, 10:00-11:30

Location: Room 217, Guanghua Building 2

Abstract: Many mergers involve firms with less-than-complementary products or technologies. This paper examines theoretically and empirically the factors that affect the expected complementarity in observed mergers. Our model demonstrates that the important determinants of expected complementarity in mergers are target's bargaining power, as well as its visibility among potential bidders, expected growth in potential bidders' profits, and the extent of competitive interaction among them. We test the model's predictions using two separate datasets, which we use to define two types of merger complementarity. The first one is based on common vocabulary in bidder's and target's product descriptions. The second is based on the relatedness of merging firms' technologies. Both sets of tests indicate that the degree of complementarity in observed mergers and acquisitions is systematically related to bidders', targets', and industry characteristics, in ways consistent with the model's predictions.