NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Gerard Hoberg, Gordon M. Phillips

NBER Working Paper No. 14289
Issued in August 2008
NBER Program(s):   CF

We examine how product differentiation influences mergers and acquisitions and the ability of firms to exploit product market synergies. Using novel text-based analysis of firm 10K product descriptions, we find three key results. (1) Firms are more likely to enter restructuring transactions when the language describing their assets is similar to all other firms, consistent with their assets being more redeployable. (2) Targets earn lower announcement returns when similar alternative target firms exist. (3) Acquiring firms in competitive product markets experience increased profitability, higher sales growth, and increased changes in their product descriptions when they buy target firms that are similar to them and different from rival firms. Our findings are consistent with similar merging firms exploiting synergies to create new products and increase their product differentiation relative to ex-ante rivals.

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This paper was revised on February 7, 2012

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Document Object Identifier (DOI): 10.3386/w14289

Published: Gerard Hoberg & Gordon Phillips, 2010. "Product Market Synergies and Competition in Mergers and Acquisitions: A Text-Based Analysis," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 23(10), pages 3773-3811, October. citation courtesy of

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