Now before looking at the new wave i.e. ninth wave of Mergers and Acquisitions, let us look at earlier waves and drivers for those M&A.
The first wave of mergers and acquisitions occurred in the period between the 1890s and early 1900s when. U.S. companies tried to build monopolies in their respective industries, an extreme form of horizontal integration (when a company acquires another that produces the same type of product, i.e., a competitor that is at the same stage of production).
With a stricter antitrust environment, the creation of monopolies was hindered by the U.S. government, and what was seen during the second wave of mergers was the creation of oligopolies and vertical integration between different companies (when a merger occurs between supplier and customer).
The third wave also known as conglomerate merger period, was seen in post-world war II period was characterised by a trend towards diversifications. The conglomerates formed during this period were extremely diverse in terms of product lines in and many of them acquired companies totally outside their original business area. GE capital, ITT telephone etc. are the examples. In fact, ITT acquired Avis car Rental Company and Sheraton hotel. This wave was characterised by economic environment in the developed countries and the global business environment.
The fourth wave of M&A was mega acquisitions and most of them were hostile takeovers and such offers are usually fully or partially financed by debt and /or private equity funds. The cause of this was mainly a combo of competitive and social environment at that time and thus most of them were domestic transactions and were highly leveraged.
The fifth wave of M&A during 1992 to 2000 was driven by globalisation, the stock market boom and high level of market deregulation. Those were more of strategic nature driven by market expansion, customers’ acquisition, and geographical reach and in the process given birth to many western MNCs. Thus it was caused mainly by a combination of global economic environment, regulatory changes and emerging technological changes in logistics and supply chain.
The sixth wave after 2001 recession and Y2K problem was driven by technology innovations and cheap funds thanks to the stimulus from the US Federal Reserve. M&A transactions multiplied with high liquidity buy also generated dissertations, especially in the prices of Target Company and leading to failures and destruction of values for most of M&A transactions. This wave was caused by a combination of social and competitive advantage . Though in the fifth wave, intangible rights and patents etc started getting its due importance but sixth wave was mainly based on competitive advantage companies had based on intangibles.
The seventh wave after 2008-09 market crash was driven by the fact that most industries already have enough capacity and as a result it may not be possible to rely only on organic growth and cost cutting to deliver consistent financial growth. It was also recognized that volatility in terms of market growth is the new standard. It was caused by globalization and dominance of MNCs both western and emerging MNCs from eastern countries. It was also supported by changing social environment even in developing and in under developed countries.
The eighth wave after 2014 was driven by increasing social and economic changes in European countries and USA, collapse of cold war era and emergence of China as one of the all-powerful world leaders and low cost manufacturer of the world. At the same time India because back office of the world. This wave created niches based on synergies, cost of production and knowledge capabilities. Erstwhile super powers were lost its control over the world and new multi –alignment axles among the countries emerged. This wave is characterised dominance of Chinese companies and dependence of world on supplies of many critical raw materials and many finished products from China.
Since 2018, Globalisation lost its importance and trend is towards de-globalisation and localisation almost negligible control of WTO and world bank other international institutions. Both developed countries including USA and developing countries like India started looking at Country First . Meanwhile black swan event of Covid-19 happened. In the next part, let us look at how Ninth wave may unfold.
Now at the beginning of the ninth wave , due to secretive and dominating policies of China ,the world leaders have recognised needs to effectively counter Chinese expansive polices and seriously started looking at options how to reduce dominance of China as super power not only in the world trade but also its dominance in defence and technology.
This article is written by our Chairman Dr. Haresh Shah. You can follow his blog here.