Merger waves

LESSON 3 : THE TIMING OF MERGER ACTIVITY

1. Common Characteristics of Merger Movements

Various environmental factors may contribute to merger movements
Periods of high economic growth
Favorable stock prices and financial conditions
Technological change (ex. telephone, internet)
Input price volatility (ex. oil industry)
Legal and regulatory changes (ex. deregulation)
Financing innovations (ex. junk bonds)

That do not mean that all economic growth period has merger wave. In recession period, documents shows that never happened.
When will be the next one ?

Common caracteritic that show history
-Boom of financial market (stock market)
-Availibility of cash is an important, but not all merger are based on cash (some are built around stock)
-Always important : imput price volitility = the volatility of some commodities have to be taken in account and show that there are a lot of merger of those activities
-Oil and gas sector : sector in which there is a lot of activity, merger activities whatever is happening
-OPEC : organisation of oil activity
-Cartel : monopoly
-Cartel politics : are responsible of the volatility of oil during the 70’s – 90’s period

-Financing innovations : nothing to do with specific industry = availibility of money. For merger, we need money (financial instrument, not absolutely cash)
 Financial instruments unlocked, create a pipeline to where th company want to go.
Mergers waves of the 80’s was drive by the financing innovations. Merger waves can happend with financing innovations, but absolutely no technoligacal changes

So merger waves can happened with a lot of situations

2. 1895-1904: First Merger Movement

Motivating factors
Changes in economic infrastructure and production technologies
–Transcontinental railroads resulted in national market
–Innovations like electricity changed many industries
Economies of scale
Availability of financiers and underwriters
“Merging for monopoly”