We propose a theory of mergers that combines managerial merger motives and a regime shift that
may lead to some value-increasing merger opportunities. Anticipation of the regime shift can lead
to mergers, either for defensive or positioning reasons. Defensive mergers occur when managers
acquire other firms to avoid being acquired themselves. Mergers may also allow a firm to position
itself as a more attractive takeover target and earn a takeover premium. The identity of acquirers
and targets and the profitability of acquisitions depend, among other factors, on the distribution of
firm sizes within an industry.