MERGER AND ACQUISITION

MEHBOOB ALAM

REG NO 11570

ASSIGNMENT: Mergers & Acquisitions WAVES

INTRODUCTION:

The field of mergers and acquisitions is a field that is undergoing a lot of research,
so a lot of research has been done on the occurrence of the merger wave and its
various characteristics. Before analyzing these results, we must first define M&A.
Acquisition is the "merger" of two or more companies to achieve specific strategic
goals. In addition, we can divide the merge into horizontal, vertical or attachments.
Horizontal mergers are the mergers of competing companies in the same industry.
Vertical mergers are mergers in which a company merges with its suppliers or
distributors. When companies in unrelated industries merge, collective mergers
occur.

History of Merger Waves

The Activity in mergers and acquisitions within side the beyond century suggests
a clustering sample. The clustering sample is characterized as a wave and that they
arise in burst interspersed with relative inactivity. When we talk those merger
waves, economics typically check with five precise waves beginning from 1890.
The duration and begin of every wave is not precise; however the give up of every
wave typically falls with a primary conflict or the start of a recession/crisis.
Furthermore, the primary and 2d wave changed into handiest applicable for the
United States market, whilst the opposite waves had greater geographical
dispersion. Especially in wave five, where except US, UK and continental Europe,
Asia additionally had a substantially multiplied M&A market.

Wave #1: 1893-1904:

The first wave accompanied after duration of monetary enlargement, and an

essential characteristic become the simultaneous consolidation of producers inside
one enterprise. This inside enterprise consolidation caused horizontal consolidation
of predominant industries and created the primary „giants‟ within side the oil,
mining and metal industries, amongst others. Furthermore, the horizontal mergers
caused the introduction of monopolies. According to Stigler (1950), mergers
“allow a capitalization of potential monopoly income and a distribution of
quantities of the capitalized profit”. In 1890 the Sherman Antitrust Act1 , which
limits cartels and monopolies, become handed however it become now no longer
but clean within side the starting so the direct effect become limited . The give up
of the primary wave got here because of a extra rigorous enactment of the brand
new antitrust legal guidelines, e.g. the Sherman Antitrust Act. Besides this, the
inventory marketplace crashed round 1905 which ended in a duration of monetary
stagnation.

Wave #2: 1910s-1929:

The 2nd merger wave began out within time of 1910s, in which the number one
recognition of merger interest became of the food, paper, printing and iron
enterprise however the wave became considerably smaller in value than the
primary wave.. As against the primary wave, this wave characterizes itself as a
writer of oligopolies. At the quit of the wave, industries had been no longer ruled
via way of means of one massive corporation, however as an alternative via way of
means of or extra. Especially small businesses, which „survived‟ the preceding
wave, had been lively at the M&A market. The goal of those businesses became to
advantage economies of scale so they had been higher equipped in opposition to
the energy of the preceding monopolist. Logic in the back of the emergence of the
oligopolies is that the merged businesses of the preceding wave had been
confronted with restrained assets due to the preceding disaster and more
enforcement of antitrust laws, specifically the Sherman‟s act .

Wave #3: 1955-1975:

Due to the global economic crisis , activity in the M&A market has decreased
significantly. It was not until the 1950s that a new wave began, and it coincided
with the new restrictions needed to prevent anti-competitive mergers and
acquisitions. Develop a new business organization. The merger of the first and
second waves usually involves horizontal (wave 1) or vertical (wave 2) integration,
but the third wave introduces the concept of diversification. Financing.The
diversified approach has led to the emergence of enterprise groups, which are large
companies composed of many companies that are not necessarily related to each
other.

Wave #4: 1984-1989:

The fourth wave began to study the inefficiency caused by the merger of enterprise
groups in the third wave. Mork, Schleifer, and Cherry showed that the quotations
of target companies competing in the same industry had a positive effect on the
1980s. The relationship between the shareholders of the participating company
and the profitability of the stock exchange. Bets on unrelated goals are the
opposite. This reflects the market's negative attitude towards independent
diversification, and independent diversification is the prevailing strategy in the
third wave of mergers and acquisitions. Another stock market crash causedThe end
of the wave.

Wave #5: 1993-2000:

The fifth wave stems from technological innovation, that is, information
technology and the way companies align with their core competitiveness in order
to gain a competitive advantage (SudiSudarsanam (2003)). Make the most of your
resources and skills. The merger is largely voluntary, and equity is the main source
of funding. The economic recession once again triggered the end of the wave.The
new millennium began with the burst of the Internet bubble, which led to the
collapse of the global stock market.

Wave#6:2000-2008:

This wave started at time of recession. The economic environment was resurfacing
due to low interest rate .in 2008 wave 6 come to an end due to recession in the
world.

Wave#7 2009 to till date:

In this wave interest rate is low but it starting once again, Stock prices is at peak.

Large companies are competing with each other in these boom economic activities.

References:
Agrawal, A., Jaffe, J. and G. Mandelker. The post-merger performance of
acquiring firms: a reexamination of an anomaly. Journal of Finance, 47 (1992):
1605–1621.

Andrade, G., Mitchell, M.L. and E. Stafford. New evidence and perspectives on
mergers. Journal of Economic Perspectives, 15 (2001): 103-120.

Andrade, G. and E. Stafford. Investigating the economic role of mergers. Journal

of Corporate Finance, 10 (2004): 1-36.

Asquith, P. Merger Bids, Uncertainty, and Stockholders Returns, Journal of

Financial Economics. 11 (1983): 51-83.

Asquith, Paul, Robert Bruner and David Mullins. Merger returns and the form of
financing. Working paper, Massachusetts Institute of Technology (1990).

Berger, P.G. and E. Ofek. Diversification on firm value. Journal of Financial

Economics, 37 (1995): 39-65.