The perfect match: assortative matching in mergers and acquisitions

We interpret M&A deals in Western Europe during the 2010s as the equilibrium of a matching model. Merger surplus arises from complementarities between multiple firm pre-merger characteristics. Large, productive firms prefer to merge with similarly productive but smaller partners, suggesting positive complementarity in productivities and negative cross complementarity between productivity and scale. We use post-merger data to show that estimated complementarities are strong predictors of merged firm performance. Our results inform the empirical relevance of different theories of mergers.