HISTORY OF MERGERS:
Merger activities have seen five majors ‘waves of merger’. The first four occurred in1897-1904, 1916-1929, 1965-1969, and 1984-1989. The fifth wave began in 1994.thecause of these waves is attributed to economic, regulatory and technological shocks.Economic shocks come in form of economic expansion to grow to meet the rapidlygrowing demand in economy. Regulatory shocks may come from removal of regulatory barriers that might have prevented corporate mergers. Technological shocks come fromtechnological advancements in industry or even giving rise to new industries.
First wave (1897-1904):
This included many horizontal combinations andconsolidations. Many industrial giants originated in first merger wave such as U.S steel,Dupont, GE, Eastman Kodak, American tobacco. Many monopolies were built. Shermanact which was enforced to prevent monopolies wasn’t effective enough.
Second wave (1916-1929):
American economy evolved during this time due to postWorld War I economic boom. This period was dominated by horizontal mergers but alsosaw many vertical mergers. The period resulted in formation of many oligopolies. Theantimonopoly provisions of ineffective Sherman act were reinforced by Clayton act.Many prominent corporations formed during this wave were General motors, IBM andunion carbide.
Third wave (1965 – 1969):
Firms during this period faced tough antitrust environmentdue to the celler-kefauver act of 1950 which strengthened the anti merger provision of Clayton act. Clayton act made the acquisition of other firms’ stocks illegal when itresulted in a merger which reduced the competition in an industry. However the law hada loophole: it did not prevent the anticompetitive acquisition of assets. The celler-kefauver closed this loophole. Thus firms with financial resources were left with only oneway of merging, forming conglomerates. Many of the acquisitions resulted in poorly performing firms which had to be sold or divested.
Fourth wave (1984-1989):
This wave featured many interesting and uniquecharacteristics. Arbitragers became a very important part of takeovers. The ability of these corporate raiders to receive greenmails (or targets assets) in exchange of their stock made it highly profitable. Investment banks played an aggressive role as well devisingmany innovative techniques to facilitate or prevent takeovers. Many of the mega deals of 80’s were financed with huge debt. These leveraged buyouts were used to take a publiccompany private.
Fifth wave (1992- ):
Fifth merger wave is truly a global merger wave with increasednumber of deals in Europe, Asia, and South America. Fifth merger wave is marked bymany mega mergers. There were fewer hostile bids and more strategic mergers. Thesedeals were not highly leveraged, financed through the increased use of equity. In mid90’s market was enthralled by consolidation deals called roll ups. Here fragmentedindustries were consolidated through larger scale acquisition of companies calledconsolidators. Certain investment banks specialized in roll-ups and were able to getfinancing and were issuing stock in these companies.