The dynamics of mergers and acquisitions: ancestry as the seminal determinant

Authored by Eduardo Viegas, Stuart P. Cockburn, Henrik J. Jensen, Geoffrey B. West

Date Published: 2014-11-08

DOI: 10.1098/rspa.2014.0370

Sponsors: European Projects John Templeton Foundation Eugene and Clare Thaw Charitable Trust

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

Understanding the fundamental mechanisms behind the complex landscape of corporate mergers and acquisitions is of crucial importance to economies across the world. Adapting ideas from the fields of complexity and evolutionary dynamics to analyse business ecosystems, we show here that ancestry, i.e. the cumulative sum of historical mergers across all ancestors, is the key characteristic to company mergers and acquisitions. We verify this by comparing an agent-based model to an extensive range of business data, covering the period from the 1830s to the present day and a range of industries and geographies. This seemingly universal mechanism leads to imbalanced business ecosystems, with the emergence of a few very large, but sluggish `too big to fail' entities, and very small, niche entities, thereby creating a paradigm where a configuration akin to effective oligopoly or monopoly is a likely outcome for free market systems.

Tags

Economics ecosystems evolutionary dynamics