MERGER WAVES

Question 1

WAVE 1 (1895-1904) - START

Answer 1

• Innovations such as railroads made cross country movement far easier
• Sherman Act made monopolistic business practice illegal, but many companies started trusts which were a way around the act, meaning they increased in presence

Question 2

WAVE 1 (1895-1904) - HEIGHT

Answer 2

• Technological growth
• Lack of skilled talent to handle growth rate

Question 3

WAVE 1 (1895-1904) - END

Answer 3

• Legislation was created in 1904 to attack monopolies via the Hepburn Act

Question 3

WAVE 2 (1922-1929) - START

Answer 3

• Many vertical mergers
• Clayton Act (response to Sherman Act) saw a rise in oligopolies (gang b)
• Fragmented industries were consolidated

Question 4

WAVE 2 (1922-1929) - HEIGHT

Answer 4

• Vertical integration high amount
• Lots of oligopolies (gang b)
• Communication capabilities were heightened

Question 5

WAVE 2 (1922-1929) - END

Answer 5

Great Depression

Question 6

WAVE 3 (1960s, CONGLOMERATE MERGERS) - START

Answer 6

• Vertical and horizontal mergers had limited growth capability due to anti monopoly laws
• Businesses started to look to other industries to make profit.

Question 7

WAVE 3 (1960s, CONGLOMERATES) - HEIGHT

Answer 7

• Overconfident managers, meant managers believed they could handle any industry and started diversifying into industries of their personal interest
• More defensive mergers as certain industries slowed down or were unsteady (e.g. railroads, textiles).

Question 8

WAVE 3 (1960s, CONGLOMERATE) - END

Answer 8

• Stock prices decline
• Tax laws limited use of convertible debt to finance mergers
• antitrust laws enacted against conglomerates

Question 9

WAVE 4 - (1980s, DEAL DECADE) - START

Answer 9

• Growth in economy conditions
• Growth in international competition
• Much more volatile landscape, big companies targeted against their will
• Return to specialisation after conglomerates of 60s

Question 10

WAVE 4 - DEAL DECADE - HEIGHT

Answer 10

• Decade of big deals
• Junk bonds heavily used to finance deals
• “Bust-up” acquisitions became popular (selling for parts)
• High amount of LBOs

Question 11

WAVE 4 - DEAL DECADE - END

Answer 11

• Economic recession
• Government intervention rise due to high insider trading

Question 12

WAVE 5 - (1992-2000, STRATEGIC MERGERS) - START

Answer 12

• Further tech innovation and globalisation (regions developing common markets)
• Improving economic environment

Question 13

WAVE 5 - 1990s - HEIGHT

Answer 13

• Popularity of stock for stock payments instead of junk bonds
• Far less hostile than the 80s
• ‘decade of deregulation’
• share repos used widely
• represented large portion of GDP for US

Question 14

WAVE 5 - 1990s - END

Answer 14

• Dot com bubble

Question 15

WAVE 6 - 2003-2007 - START

Answer 15

• Solid economic foundations, growth not due to overvaluation/overestimation this time
• Less debt financing and more cash for buyers

Question 16

WAVE 6 - 2000s - HEIGHT

Answer 16

• Less managerial hubris deals
• Lower premiums offered due to less overconfidence
• Sarbanes-Oxley Act meant increased corporate governance, reducing overvaluing
• Reduced speculation should have resulted in greater profitability for deals (all deals should be good deals), but the opposite occurred due to free cash flow problem as liquidity was available a lot

Question 17

WAVE 6 - 2000s - END

Answer 17

Crisis 2008

Question 18

WAVE 7 - 2010s - START

Answer 18

• Positive post-crash market conditions
• Far higher importance on corp governance after 2008

Question 19

WAVE 7 - 2010s - HEIGHT

Answer 19

• First time of average returns being positive for both acquirer and target
• Low interest borrowing available
• Many large tech deals
• Vertical and horizontal mergers present