Do mergers and acquisitions affect the competition situation? Evidence from Finland

The objective of this study is to investigate the competition impacts of mergers and acquisitions (M&As). The direct competition effect on prices cannot be measured owing to the lack of establishment and firm level data on prices. Therefore we mainly examine the effects on turnover. We assume that M&A’s direct influence on those firms’ sales which are involved in M&As and, on the other hand, its indirect influence on the firms’ sales which are not involved in M&As already describe the competition effects. If an M&A weakens competition, the turnover of a target firm’s establishment or an acquiring firm’s establishment should decrease and, in addition, the turnover of other firms’ establishments should increase. The latter effect materializes when the direct effect makes room for the other firms to expand. This analysis is supplemented by an evaluation how M&As affect profits and the creation and exit of plants. The sale impacts are investigated, primarily, at the establishment level. Our data comprises two parts: the first includes the target companies’ establishments and the second the acquiring companies’ establishments. In both data sets the M&As are characterized in various ways. The defined industrial proximity allows us to divide M&As into horizontal and vertical transactions. M&A data sets are then combined with the other data sets of Statistics Finland. The establishment-level data can also be aggregated to the firm level. In the data set for target firms an establishment is a part of a cross-border M&A when it belongs to a firm which is purchased by a foreign company, whereas, in the data set for purchasing firms the cross-border M&A refers to a case in which a Finnish firm buys a foreign firm. The data then includes information only about those operations of the Finnish firms. When analysing the impacts of MAs the data sets are divided into three different industry blocks which are: 1) manufacturing, 2) trade including hotels and restaurants and 3) other services and construction. According to the results, the horizontal domestic M&As tend to restrict competition in service sectors but not in manufacturing. The other domestic M&As, instead, have no clear competition repressing impact. The cross-border M&A – in which a foreign firm buys a domestic firm – decreases competition in manufacturing and in other services (included construction). The internal restructurings have no unambiguous competition impacts.