First Wave(late 19th century)
The first wave of M&A took place in the late 19th century, from around 1893 to 1904, a period where many business owners saw the potential of growing their operations through M&A transactions. At the time, horizontal mergers were preferred, meaning, firms were buying/merged within the same industry to form larger entities. The period created giants in the oil, steel, and railroad industries.
Second Wave(1919-1929)
The second wave occurred around the first world war period — from 1919 to the starting of the Great Depression in 1929. This is when the monopolization from the giants formed earlier resulted in the first U.S. Antitrust law protecting competition. Hence, vertical expansion was more significant in the period(as they weren’t allowed to expand horizontally).
Third & Fourth Wave(1950s-1980s)
The third wave took place from around 1955–1970. This period mainly involved the formation of conglomerates, targeting multiple industries and aiming to diversify operations. The next wave saw hostile takeovers and Leveraged Buyouts becoming popular among financial buyers during 1974–1989. A takeover is considered hostile when it doesn’t have the approval of the existing board of directors(BODs) and the majority of shareholders. However, public firms are often subject to such takeovers as financial buyers are able to offer a significantly better price per share compared to current market conditions.
Fifth Wave & the Global Financial Crisis
The fifth wave happened in the late 20th century, with many firms expanding globally. The dot com bubble marks the end of this wave. During 2003–2008, a great deal of Private Equity and LBO Transactions were carried out, marking the sixth wave of M&A Transactions. However, the end to this wave came with the 2008 global financial crisis and the bankruptcy of global investment bank Lehman Brothers and mortgage firms Fannie Mae and Freddie Mac. Soon the financial crisis turned into a sovereign debt crisis in which countries like Iceland defaulted on their debt while economies like Italy, Portugal, and Spain were on the brink of unsustainability.
By 2011, a hard push from the central banks and a large quantity of newly printed money helped restore investor confidence and this led to the seventh global M&A wave. After the crisis, many corporations became attractive targets to foreign investors due to suppressed valuations, cross-border transactions became very popular among Asian corporations who developed a strong appetite for European businesses.
With the onset of the COVID-19 global pandemic, the current wave of M&A transactions might just take a new turn, and as businesses and economies reopen, it’ll be interesting to see further development in the M&A domain.
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