Acquiring Supplier Networks: Domestic Mergers for International Supply Chain Resilience

Abstract

Long-standing international supplier relationships represent valuable and hard-to-replicate intangible assets that mitigate the search and contracting frictions inherent in global value chains. We propose and show that domestic mergers and acquisitions (M&A) serve as a key strategic vehicle for acquiring these established supplier networks, providing a novel source of merger synergy. Using detailed transaction-level shipment data from 2007–2020, we find that post-merger, acquirers systematically adopt the target’s supplier relationships, with a pronounced preference for those that are long-standing. This adoption occurs for both inputs the acquirer already sources (enhancing resilience) and new inputs (facilitating expansion). Consistent with this type of synergy, the likelihood of a merger increases with the similarity of the firms’ imported input portfolios, especially during periods of heightened supply-chain risk, when the value of a target's vetted network is highest. Furthermore, these mergers generate competitive advantages through foreclosure-like effects on target rivals when their supply chains overlap with the acquirer’s, leading to improved valuations and sales growth for target firms. Overall, we show that a primary synergy in many M&As is the acquisition of “relational capital” embedded in the target’s supply chain.

Presented by Sudipto Dasgupta.