Thursday, January 2, 2014

Network Approach to Mergers & Acquisitions

Today's New York Times has an article, "U.S. Merger Activity in '13 Back at the Trillion-Dollar Level," by David Gelles, which immediately caught my attention.

My supernetwork research group has been working on modeling potential synergies associated with Mergers & Acquisitions (M&As) using networks in order to ascertain whether a pending deal may be worthwhile or costly.

The Times article also included a great graphic which I have reposted below:
First, you may notice that many of the industries that were especially active with respect to M&As in 2013 are actually network industries (wireless, transportation and infrastructure, power, telecommunications, and I would argue even banks as financial networks). Hence, it makes (alot of) sense that any quantification of possible synergies associated with mergers and acquisitions should be network-based.

Interestingly, a few weeks ago, I was interviewed for a piece by Mark Huffman on in its Ask the Experts series on the topic: Should American Airline, US Airways Merger Be Blocked? The merger did go through.

The comments on the Times article by readers were also quite good and several alluded to criteria associated with M&As (and not just having the lawyers earn $$$ from the deals).

In our work on M&As, we have pursued not only criteria of (possible) cost reduction but also risk reduction as well as environmental impacts. Some of our papers are noted below with associated links: A System-Optimization Perspective for Supply Chain Network Integration: The Horizontal Merger Case, Anna Nagurney, Transportation Research E 45: (2009) pp 1-15.

Environmental and Cost Synergy in Supply Chain Network Integration in Mergers and Acquisitions, Anna Nagurney and Trisha Woolley, in Sustainable Energy and Transportation Systems, Proceedings of the 19th International Conference on Multiple Criteria Decision Making, Lecture Notes in Economics and Mathematical Systems, M. Ehrgott, B. Naujoks, T. Stewart, and J. Wallenius, Editors, Springer, Berlin, Germany (2010) pp 51-78.

Risk Reduction and Cost Synergy in Mergers and Acquisitions via Supply Chain Network Integration, Zugang Liu and Anna Nagurney, Journal of Financial Decision Making 7(2): (2011) pp 1-18.

I also wrote on the merger paradox in the paper below:
Formulation and Analysis of Horizontal Mergers Among Oligopolistic Firms with Insights into the Merger Paradox: A Supply Chain Network Perspective, Computational Management Science 7: (2010) pp 377-401.