Riding the wave: Distributional properties and process explanations of merger and acquisition waves

Although Mergers and Acquisitions (M&A) are potential value-creation opportunities, why they tend to occur in waves is a mystery to scholars and managers alike. Most models of M&A waves are unilevel, reductionist, and Gaussian, whereas wave patterns are arguably multi-level, emergent, and non-normally distributed. Using complexity theory, I interpret waves as emergent expressions of a self-organized critical ecology of firms conceptualized as a complex adaptive system. My observation that aggregate U.S. M&A waves from 1895 to 2008 are power-law-distributed lends support. The view that waves are self-organized critical phenomena, similar to earthquakes and avalanches, facilitates integration of prior wave theories. I then employ process-tracing to generate a historical narrative of the Great Merger Wave of 1898-1903, from which I obtain a robust process for waves consistent with a CAS interpretation of these phenomena: (1) a privatizing, market-expanding and financially innovating transportation network generates (2a) laissez-faire regulation, (2b) economic competition, and (2c) financial arbitrage, leading to (3) a burst of consolidation. My process explanation explains the power laws emergence, and may help to understand better the process dynamics of M&A waves.