Merger Acquisition
The sixth merger wave began in 2003, less than three years following the end of the previous cycle. Merger waves therefore are occurring on a more frequent basis with a much shorter quiet period. This sixth merger wave has been truly global and has seen more focus on strategic fit and attention to post-merger integration issues. It has been heavily influenced by the corporate governance scandals of the early years of the new millennium and the resulting laws and regulations that have been passed –most notably the Sarbanes-Oxley Act in the United States. Success for these deals has been largely driven by three factors, as shown in Figure 1.1, which comes from a presentation that Towers Perrin developed together with Cass Business School.
An additional change in the sixth merger wave has been the rise in activity by financial buyers (hedge funds, private equity funds, and venture capital funds) who therefore do not and cannot have strategic interests as the primary driver. These funds purchase large stakes in companies and then either purchase the remaining part of the company or force a reorganization through the exercise of their shareholder rights. In some cases these shareholder actions have stopped deals from taking place where the funds exerted pressure on management as they felt they could achieve higher returns in other ways, such as the return of cash to shareholders in the form of a special dividend or where the intrinsic growth potential of the company was seen to be
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Figure – Sixth Merger Wave Success Factors
Unlike previous merger waves, more companies have been successful with their acquisitions than not, although it is not clear whether this trend will continue. As shown in Figure 1.2, our analysis, in consultation with Towers Perrin, of shareholder performance in deals during the 1980s and 1990s was negative when compared to the market, whereas the performance of deals in the recent merger wave is thus far better than the market.
An additional change in the sixth merger wave has been the rise in activity by financial buyers (hedge funds, private equity funds, and venture capital funds) who therefore do not and cannot have strategic interests as the primary driver. These funds purchase large stakes in companies and then either purchase the remaining part of the company or force a reorganization through the exercise of their shareholder rights. In some cases these shareholder actions have stopped deals from taking place where the funds exerted pressure on management as they felt they could achieve higher returns in other ways, such as the return of cash to shareholders in the form of a special dividend or where the intrinsic growth potential of the company was seen to be
[pic]
Figure – Sixth Merger Wave Success Factors
Unlike previous merger waves, more companies have been successful with their acquisitions than not, although it is not clear whether this trend will continue. As shown in Figure 1.2, our analysis, in consultation with Towers Perrin, of shareholder performance in deals during the 1980s and 1990s was negative when compared to the market, whereas the performance of deals in the recent merger wave is thus far better than the market.