Your Rival Just Made a Huge Acquisition. Now What?

When Microsoft announced its $69 billion acquisition of Activision Blizzard in 2022, the gaming industry scrambled to analyze what it meant for competitors like Sony, Nintendo and Electronic Arts. But the real uncertainty went deeper than market share. Microsoft had already acquired Bethesda: Would it successfully execute its aggressive expansion strategy? Or would regulatory scrutiny and the complexity of integration create opportunities for rivals to gain ground? 

This high-stakes guessing game illustrates a persistent challenge for rival executives: predicting how major acquisitions will reshape competitive dynamics in their industry. While most focus on corporate concentration ratios, market power and deal structure, such factors paint an incomplete picture and often take years to come into focus. They may offer clues to potential impacts, but limited insight on how specific companies will compete after a big acquisition shakes up an industry. 

Instead, executives would be wise to monitor a signal favoured by shrewd investors: the “acquirer's” recent competitive behaviour. This competitive track record provides real-time intelligence that static industry metrics can’t match, says Goce Andrevski, Distinguished Research and Teaching Fellow of Strategy at Smith School of Business.

As Andrevski points out, two acquirers in the same industry making similarly sized deals can trigger dramatically different investor reactions depending on their recent competitive moves. That’s because investors look at factors that are dynamic: how aggressively the acquirer has been launching new products, forming alliances, expanding capacity, and making other competitive moves in the year before the deal — and, crucially, whether those moves were seen as effective.

By understanding what drives such investor expectations, rivals can anticipate whether a deal is a threat or an opportunity, says Andrevski. “Stock prices tell us how investors expect the deal to reshape competition right now,” he says. “That immediate reaction is a leading indicator of perceived competitive consequences, especially for rivals.” 

Tracking share prices

Andrevski’s research bears this out. A recent study he conducted with Dimitrija Kalanoski (University of Manchester), Kamyar Goudarzi (College of Charleston School of Business) and Danny Miller (HEC Montréal) looked at how investors form expectations about whether a major acquisition will help or hinder direct rivals.

“We were trying to solve a puzzle: Why do some rivals gain, some lose and some show no reaction at all when a competitor announces an acquisition?” says Andrevski. “Traditional explanations focusing on industry structure or deal size couldn’t fully explain those differences. At the same time, investors clearly pay attention to firms’ recent competitive actions. We wanted to bring that behavioural lens into acquisition research.” 

The team analyzed 170 major acquisitions across 21 industries, drawing on a unique dataset from European Commission antitrust files covering acquisitions from 2001 to 2014. These were large deals that triggered regulatory scrutiny because of their potential market impact. 

The researchers tracked competitive actions reported in major media outlets, then measured how stock markets reacted both to these competitive moves and to the acquisition announcements themselves. 

The study revealed an unmistakeable pattern: When highly aggressive firms — those launching many competitive initiatives — announced major acquisitions, stock prices of rivals typically rose rather than fell. The more hyperactive the acquirer, the more rival stock prices tended to benefit. 

Why would a rival’s stock value rise when a competitor becomes more powerful through acquisition? It could signal market growth that benefits all industry players or suggest more consolidation ahead that could turn a rival into a potential target. It could even foreshadow integration headaches to be exploited.

A matter of execution

The critical factor, though, is not just how much a competitor does, but how well they do it. “Being aggressive isn’t enough,” Andrevski says. “You need to execute well too.”

The study found that when an aggressive acquirer also had a track record of effective execution — consistently generating positive investor reactions to their moves — the market expected the acquirer to successfully integrate new resources and strengthen their competitive position. In such cases, the rival’s stock prices typically fell.

Conversely, when aggressive acquirers had weak execution track records — with past moves generating negative market reactions — investors expected integration difficulties to compound existing problems. Rivals benefited as the market anticipated competitive opportunities emerging from these struggles.

The rival’s track record is part of the story too. According to the study, when a rival had proven execution capabilities through their own competitive actions, investors expected them to better capitalize on whatever opportunities emerge. Effective rivals are better positioned to anticipate the acquirer’s moves, respond strategically to market shifts, and even become attractive acquisition targets themselves.

The research found that a rival’s effectiveness significantly amplified positive effects when acquirers were highly aggressive. It suggests that competent rivals are best positioned to exploit overly ambitious acquirers.

Benefitting from big moves

There is plenty to unpack for executives of hyperactive companies and their rivals. To start, investor insights on competitive dynamics can help leaders manage their investor relations, the researchers say. But these insights extend beyond predicting stock market reactions to a more nuanced understanding of the competitive landscape. The implications differ dramatically depending on which side of the deal you’re on.

If you are an executive at a rival, don’t just monitor competitor announcements — track their patterns of behaviour. How many significant moves have they made? How did the market react to those moves? What does this pattern reveal about their strategic intent and execution capability?

When assessing the impact of an acquisition by an aggressive competitor, your response should depend on how well they execute. Against effective acquirers, don’t wait to see how they use their new capabilities. Shore up your firm’s operational efficiency with lean management and accelerate your innovation pipeline.

Against ineffective acquirers struggling with integration, you may be positioned to capture market share. Don’t get drawn into their chaos or try to match their frenetic pace. While they are drowning in integration challenges, fine-tune your operations. Be ready to move fast when customers get frustrated with their service disruptions.

Also recognize that institutional investors may become more activist if they perceive your company as negatively impacted by a “competitor's” acquisition. Proactively communicating your competitive positioning and strategic responses can help manage investor expectations.

If you are an executive busy acquiring other companies, your competitive track record matters before you even announce a deal. A history of ineffective actions will make investors skeptical of your ability to create value through acquisition, potentially depressing your stock price and making deals more expensive.

The wise response would be to build credibility through successful execution before pursuing transformative acquisitions. Each product launch, alliance and market initiative either strengthens or weakens investor confidence in your strategic capabilities. 

Reading the signals

In a business environment where competitive landscapes can shift rapidly, behavioural signals provide more timely intelligence than structural metrics alone. The acquirer’s actions speak louder than their market position, if you know how to listen.

For companies on either side of major deals, Andrevski says, the message is clear: your competitive track record is being watched, analyzed and priced in by the market. Each move you make shapes expectations for the next. In the high-stakes world of transformative acquisitions, past behaviour may be the best predictor of future competitive impact.