History of Mergers and Acquisition

In the previous section, we had an overview of merger and acquisition. In this section we will cover its history. The understanding of the history of mergers and acquisition helps us to understand the importance of mergers and acquisitions in the world. If we take into account the detailed history, we find that merger and acquisition started to take place in the world from very early years. The emergence of U.S merger and acquisition took place in the early 20th century. After that it continued to take place in cycle or wave. During the cycle or wave, maximum number of mergers had taken place as discussed here under:

• The start of first wave merger: The first wave merger started from 1897 to 1904. During this wave, merger had taken place involving different companies enjoying domination in railroads and electricity. In this period, horizontal mergers occurred between heavy manufacturing industries.

• The end of first wave merger: Due to the decreased efficiency, majority of the mergers that had started during the first wave ended up in failure. This resulted in the slowdown of economy in 1903 and also the crash of stock market in 1904. There was no supporting base for the legal framework.
• The start of second wave merger: The commencement of second wave merger took place from 1916 to 1940, giving importance to the mergers between the oligopolies to a certain extent than the monopolies. Major technical development like the railroads and transportation motor vehicles came into existence. The government policy was passed in 1920s encouraging firms to work in harmony. The second wave merger that took place was horizontal in nature. The producers of primary metals, food products, transportation equipment and chemicals were some of the industries that went for merger during this  wave.  A number  of  investment  banks helped  in  the  process of merger and acquisition.

• The end of second wave merger: In 1920, the second wave merger faced a major failure with the stock market crash. Again in 1940s, the tax exemption encouraged conglomerates to involve themselves in M and A activities.
• The start of third wave mergers: The conglomerate mergers developed during the period 1965 to 1969. The stern enforcement of antitrust laws, interest rates, high stock price took place during the third wave merger. The bidders of the third wave merger were minor than the target firm. The role of investment banks were replaced due to the funding from equities.
• The end of third wave merger: In 1968, the split of conglomerate took place that marked the end the third wave merger. One of the reasons was the poor performance of the horizontal mergers. The INCO-ESB merger; United Technologies and OTIS Elevator Merger are the merger between Colt Industries and Garlock Industries were the most prominent ones that set precedence in the 1970s.
• The start of fourth wave merger: The fourth wave merger began in 1981 and ended by 1989 and was characterised by acquisition targets. The mergers between the oil and gas industries, pharmaceutical industries and various banking and airline industries had taken place. The  foreign  takeover  became  more  prominent.  The  result  of  anti takeover laws, financial institutions reform and the gulf reason marked the end of fourth wave merger.

• The start and end of fifth wave merger: The commencement of fifth wave merger was triggered by globalisation, stock market rise and free enterprises. The fifth wave merger took place mainly in the telecommunication and banking sectors. The mergers were driven long term rather than short term profit motives. The burst in the stock market concluded the fifth wave merger.

Therefore, we can assume that the growth of merger and acquisitions has been long drawn. The economic factors characterised its development. As far as the economic units of production exist, merger and acquisition would last for an ever expanding economy.

The lessons from the history about merger and acquisition will give the acquirer an idea of the right and wrong strategies used by these companies. He may then use this information for planning a good strategy.