Procompetitive effects of vertical takeovers. Evidence from the European Union

TL;DR

This paper provides empirical evidence from the EU showing that vertical takeovers can have procompetitive effects, such as increased profitability and market share, challenging the presumption of harm in recent merger guidelines.

Contribution

It offers the first comprehensive analysis of the causal effects of vertical takeovers on firm financials in the EU, highlighting their potential benefits.

Findings

Vertical takeovers increase market share by 2.5%.

Vertical integrations lower markups by 0.7%.

Effects grow over time and with larger acquirers.

Abstract

This study investigates the causal impact of takeovers on firm-level financial accounts on a sample of 4,482 targets in the European Union in the period 2007- 2021. Findings suggest that horizontal integrations do not have a statistically significant impact, while vertical takeovers bring about a lower markup (0.7%), a larger market share (2.5%), a higher profitability (2.3%), and a lower capital intensity (7.2%). The impact of vertical integrations grows over time, and it is higher when the corporate perimeter of the acquirer is bigger. Our results point to strategies aimed at eliminating double profit margins along supply chains. Finally, we reconnect with the debate initiated by the U.S. Vertical Merger Guidelines in 2020 and 2023, where the presumption of harm after vertical deals has been softened, thus considering procompetitive effects, but the discussion of potential foreclosure risks has been expanded.