Detection of Cartels Stimulates M&A Market

In the years after a cartel has been detected, the number of mergers and acquisitions (M&A) in the respective economic sector increase considerably. This indicates a causal relationship between the detection of illegal cartel agreements and the number of M&A activities in the respective sectors. These are the findings of an analysis conducted by the Centre for European Economic Research (ZEW). The analysis is based on decisions on cartels by the European Commission as well as the Zephyr data base by Bureau van Dijk (BvD), which contains information on mergers and acquisitions worldwide.

Detections of cartels in twelve different economic sectors in Europe and the M&A activities in the respective economic sectors were analysed in the period of three years before the detection of said cartels until five years after that. The analysis of M&A activities refers to cases in which anticompetitive agreements ended between 2001 and 2005.

The analysis indicates that the number of transactions in all twelve economic sectors considerably increases in the year when a cartel is detected. In the following years, the number of transaction continues to be on this high level. This suggests that the detection of cartels stimulates M&A activities for a couple of years. "A reason for the fact that the smash of cartels stimulates the M&A market seems to be that, after cartels have been detected, the balance of power on the market has to be rearranged. Apparently this motivates many market players to secure or improve their own position by merging with another company," says Tobias Veith, ZEW researcher responsible for the analysis.

Moreover, the analysis shows that, in the five years after cartels have been detected, the detection tends to lead to lower transaction values of deals. Mark Schwerzel, International Director BvD, assumes that cartel fines lead to a decrease of company value in the long run: "If a cartel made risky transactions with a high value, the cartel fine causes a devaluation of the company. Consequently, the volume of each deal is decreasing despite increased M&A activities."

For further information please contact

Dr. Tobias Veith, E-mail: veith@zew.de