Mergers have typically occurred in cyclical patterns: periods of intense merger activity

have been followed by intervening periods of fewer mergers. 

Historians and M&A specialists have identified five merger waves in the history of the
United States. What follows are the dates of each merger wave and some of each
wave’s major characteristics:

First Merger Wave (1897-1907)

 

 The first merger wave followed the Depression of 1883.

About two thirds of all merger activity during the first merger wave was
concentrated in a handful of industries: petroleum products, mining, metals, food
products, and transportation.
 The first merger wave included many horizontal mergers, so the affected
industries became highly concentrated. For example, during this period J.P.
Morgan merged U.S. Steel with Carnegie Steel and more than 700 small steel
firms. The resulting mega-steel company controlled 70~80% of the steel
production in the United States.
 The monopolies created during the first merger wave spurred a backlash. The
Justice Department charged a number of the large monopolies with violating the
Sherman Antitrust Act (1890). President Theodore Roosevelt (1901-1907),
became known as a “trust buster.” He began aggressively pursuing the trusts
while in office. His successor, William Howard Taft, also enforced the Sherman
Antitrust Act vigorously.
 

Second Merger Wave (1916-29)

 The second merger wave began during World War I and continued until the stock
market crash of October 29, 1929.
 Because of the heighten government vigilance that occurred toward the end of
the first merger wave, mergers during the second merger wave faced increased
governmental scrutiny. The Clayton Act (1914) was an additional tool that federal
authorities could now wield against uncompetitive mergers.
 Overall, mergers of the second merger wave were characterized by oligopolies
rather than monopolies. There were more vertical mergers than horizontal
mergers.

Third Merger Wave (1965-1969)

  The third merger wave coincided with a period of economic prosperity in the
United States. The strong economy gave many firms the resources necessary to
acquire other companies.
 The third merger wave was characterized by mergers among unrelated
companies, also known as conglomerate mergers.
 The horizontal mergers that occurred during the third merger wave were subject
to strict antitrust enforcement. Antitrust enforcers now had yet another piece of
key legislation in their arsenal: the Celler-Kefauver Act of 1950. This law
reinforced the Clayton and Sherman Acts.
 The Johnson Administration (1963-1969) favored aggressive antitrust
enforcement. Richard M. Nixon, who took office in 1969, was generally more
tolerant of merger activity.

Fourth Merger Wave (1981-1989)

 

 The fourth merger wave coincided with the presidency of Ronald Reagan, and
the economic prosperity of the mid- to late-1980s.
 Although most mergers that occurred during the fourth merger wave were
“friendly,” this period included more hostile takeovers than previous merger
waves. It was during the fourth merger wave that the term “corporate raider”
entered the American lexicon.
 Mergers of the fourth merger wave were larger than those of earlier periods.
Mergers in the billion-dollar range became common.
 Debt was more widely used to finance mergers.

dd