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Quantifying Operational Synergies of M&A: An Stochastic Equilibrium Approach

With the increase in merger and acquisitions (M&A) activities, managers of bidder firms need to make informed decisions on quantifying the operational synergies in an M&A. This paper considers a stochastic variational inequality approach to quantifying the operational synergies in a horizontal M&A through the integration of a supply chain network, in which each firm is represented as a network of economic activities associated with manufacturing, distribution, and storage. Specifically, we seek to quantify the gains, if any, associated with M&A. The model is stochastic and sufficiently general to handle many decision-makers and their independent behaviors. This paper extends Nagurney (2009) in which the cost functions (including both the production function and the transaction function) and the pricing cost are deemed as stochastic. Quasi-Monte Carlo approximating and homogeneous interior-point methods are used to solve the stochastic problem. Numerical results are provided.