A formula, once
understood,
could save a
grat deal of
time upfront
in mergers
and acquisiton
considerations.
by Phil Phillips, PhD
Contributing Editor
phillips@chemarkconsulting.net
Joint ventures, mergers and acquisitions are many times, extra-ordinarily com- plicated disjointed and time consuming.
We would not attempt to cover all of these
M&A dynamics in a single column but we
feel compelled to alert you to and define one
very important “hurdle” the government uses
when evaluating both public and privately
held companies. A formula, once understood,
could save a great deal of time upfront in
M&A considerations.
Ever since the early eighties, the U.S.
Department of Justice, the Federal Trade
Commission, and state attorneys general
have used a screening guide referred to as the
Herfindahl-Hirschman Index (HHI) to measure
market concentration for purposes of antitrust
enforcement. This market index (HHI) is calculated by summing the squares of the percentage market shares held by the respective firms
within a specific well-defined market space. For
example, an industry consisting of three firms
with market shares of 40%, 30% and 30% has
an HHI of 40²+ 30²+ 30², or 3400.
The HHI takes into account the relative
size distribution of the firms in a market. It ap-proaches zero when a market is occupied by a
Mergers & Acquisition Hurdles
