The dynamics of mergers and acquisitions: ancestry as the seminal determinant.
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.
Centre for Complexity Science and Department of Mathematics , Imperial College London , London SW7 2AZ, UK.
Eduardo
E
Viegas
PricewaterhouseCoopers LLP, 7 More London Riverside, London SE1 2RT, UK.
Stuart P
SP
Cockburn
Centre for Complexity Science and Department of Mathematics , Imperial College London , London SW7 2AZ, UK.
Henrik J
HJ
Jensen
Centre for Complexity Science and Department of Mathematics , Imperial College London , London SW7 2AZ, UK ; Santa Fe Institute , 1399 Hyde Park Road, Santa Fe, NM 87501, USA.
Geoffrey B
GB
West
economics; ecosystems; evolutionary dynamics