Horizontal, Vertical, and Conglomerate Cross-Border Acquisitions

Abstract

Using data on cross-border acquisitions (CBAs), this paper explores the distribution of alternative strategies pursued when multinational enterprises integrate foreign subsidiaries into their organizational structure. Based on a measure of vertical relatedness, each of the 165,000 acquisitions in our sample covering 31 source and 58 host countries can be classified as horizontal, vertical, or conglomerate. Three novel features of CBAs are highlighted. First, horizontal and vertical CBAs are relatively stable over time. Second, a considerable part of CBAs are conglomerate acquisitions whereby the financial sector is an important, though by far not the only, segment involved. Third, the wave-like growth of CBAs arises primarily from changes in conglomerate activity. [JEL F15, F21, F23, F33] IMF Economic Review (2016) 64, 319-353.

How Does Transfer Pricing Risk Affect Premiums in Cross‐Border Mergers and Acquisitions?

“…Holding other factors constant, higher volumes of cross‐border transactions will produce greater tax benefits. Herger and McCorriston () discuss three types of cross‐border acquisitions—horizontal, vertical, and conglomerate—that differ in their volume of post‐acquisition trade. Relative to horizontal and vertical acquisitions, conglomerate acquisitions are expected to have little effect on the acquirer's supply chain and consequentially a lower volume of post‐acquisition intra‐firm trade.…”

“…Holding other factors constant, higher volumes of cross-border transactions will produce greater tax benefits. Herger and McCorriston (2014) discuss three types of cross-border acquisitionshorizontal, vertical, and conglomerate-that differ in their volume of post-acquisition trade.…”

“…We define the same industry as the same 2-digit primary SIC code, which could represent horizontal mergers, but also has been used to measure vertical mergers (Alfaro and Charlton 2009). 20 Our measure equals zero for conglomerate acquisitions, as defined by Herger and McCorriston (2014). We expect that same-industry mergers will create greater potential tax benefits.…”

“… Herger and McCorriston () investigate trends in cross‐border acquisitions comparing horizontal and vertical and therefore use 4‐digit SIC codes and additional analyses to identify horizontal and vertical acquisitions separately. Our analyses does not separate vertical and horizontal acquisitions as both horizontal and vertical acquisitions are expected to generate higher volume of post‐acquisition intra‐firm transactions relative to conglomerate acquisitions.…”

Greenfield versus merger and acquisition FDI: Same wine, different bottles?

“…It can be found at fdimarkets.com. 21 As we do not have data on the sector of the parent, we cannot identify vertical versus horizontal investments asHerger and McCorriston (2014) do for M&A data.22 Although the original data provide additional sectors, we were unable to obtain the sector-level controls for all of these individually and were forced to combine some sectors. To minimize confusion, we therefore focus on the aggregated groupings in table 1.…”