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MERGERS & ACQUISITIONS
The Five Merger Waves
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.
Fifth Merger Wave (1993-2000)
The fifth merger wave followed the economic recession of 1990-91, and coincided with the presidency of Bill Clinton.
Large mergers occurred at about the same level as they had during the fourth merger wave; but hostile takeover activity diminished.
Whereas many of the mergers of the fourth wave were executed for short-term financial gains, mergers of this period emphasized longer term business strategies.
Debt-financed mergers were less common than they were during the fourth wave.