Buying International Supply-Chain Networks through Domestic M&A

Tariffs now change faster than firms can adjust to them. An international supplier that looked cheap and reliable in January can be stuck behind a new duty, an export ban, or a closed port by spring. For a decade, global supply chains were built for efficiency above all else. The bill for that has come due, and “resilience” has moved from a buzzword to something boards actually worry about. The McKinsey Global Institute estimates that a typical supply chain now faces a disruption of a month or longer every 3.7 years, with losses over a decade worth about 42% of one year's profits.

In our new study, “Acquiring Supplier Networks: Domestic Mergers for International Supply Chain Resilience”, we ask a simple question: when a firm wants a safer, more diversified set of suppliers under international supply-chain disruptions, what does it actually do? The answer we find is one that hides in plain sight. Firms buy domestic companies that import similar goods but from different sourcing countries, acquiring their international supplier networks for resilience. We call these deals Import-Related Mergers. Instead of finding and vetting foreign suppliers one at a time, the buyer inherits a whole, ready-made network in a single transaction. Using detailed US import records, we show that this motive shapes which firms merge, how they pick targets, and what they do afterwards.

A merger can be a useful way to build a more resilient supply chain, especially when a firm needs to move quickly. Supplier relationships take time to form: a new foreign supplier has to be found, vetted, and brought on board, and much of what makes these ties work is the trust built up through repeated dealing. A merger lets the acquirer take on a whole bundle of these relationships at once, rather than assembling them one by one. That can matter most when supply-chain risk is rising and the firm cannot afford to wait.

The data make the case. We measure how similar two firms' import baskets are, using customs records that list the importer, the exporter, the product, and the country of origin. The more alike two firms' imports, the more likely they are to merge. A one-standard-deviation increase in this similarity raises the chance of a merger by about 28%. This is not just product-market overlap in disguise: the result holds even after we control for product similarity, shared suppliers, and shared source countries. What attracts the buyer is not the same suppliers, but a second source for the same inputs.

The pattern is strongest when resilience motives of the acquirers are higher. The link is sharpest when supply-chain risk is high, when trade-policy uncertainty spikes, and, after 2018, when the target offers a way to move sourcing out of China. These deals look like a hedge against geopolitics. Managers sometimes say so plainly. When LVMH acquired Tiffany in 2019, its chief executive Bernard Arnault singled out diamonds, a category where, he noted, the "sourcing is not easy to do," and said the firm expected to benefit from Tiffany's position. More often the motive is buried under talk of 'synergies', which is why shipment data, not press releases, is needed to find it.

How does a buyer even find the right target? US public firms must disclose their major customers, but not their suppliers, so a target's supply-chain network is not something an acquirer can simply look up in disclosures. One way they learn about it is through people. Acquirers that have hired a target's former supply-chain employees are far more likely to go on to do the deal. Information is the hard part, and firms solve it by bringing in the people who carry it.

What happens after the deal shows the supply chain motive in action. Buyers start importing from the target's suppliers, and the chance of sourcing from target’s suppliers jumps more than fourfold. They show a clear preference for the target's oldest supplier relationships, the ones with the most trust built in. They keep the target's long-serving supply-chain staff rather than letting them go, because those people are the relationship. Measured supply-chain uncertainty falls after the merger. The buyer is not paying for a list of names. It is paying for the relationships, and for the people who hold them together.

Recent discussions of supply-chain resilience have primarily focused on inventories, nearshoring, and dual sourcing. It has mostly missed a tool that dealmakers already use but rarely name: buying the supplier relationships hidden inside another firm. As trade policy stays unpredictable, we expect more deals where the real prize is not the brand or the patents or the customers, but the supply-chain networks that come with them.

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Sudipto Dasgupta is a Professor at the Department of Finance at The Chinese University of Hong Kong (CUHK) Business School, and an ECGI Research Member.

Ling Cen is an Associate Professor of Finance at The Chinese University of Hong Kong (CUHK).

Isil Erel is a Professor of Finance, the David A. Rismiller Chair in Finance at the Fisher College of Business of the Ohio State University, and an ECGI Research Member.

Yanru Han is an Assistant Professor of Finance at School of Business, Stevens Institute of Technology.

This blog is based on a paper presented at the Tenth Annual Mergers and Acquisitions Research Centre (MARC) Conference, held in London and hosted by Bayes Business School in collaboration with ECGI. Visit the event page to explore more conference-related blogs.

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