Part 1

• No forecasting power (ex post interpretation)

• Numerous triggers and endogenous amplifiers

• Different narratives of each merger wave

• Determinants: management fads, strategic targets, financial market developments, regulatory, external factor

Shocks create new environments to which firms react by buying appropriate assets

• Economic shocks

• Regulatory shocks

• Technology shocks

• Financial shocks/financial innovations

• Assumption of (informationally) inefficient financial markets

• Overvaluation of firms

• Search for undervalued firms, payments in stocks

• Spreads overvaluation across markets

• Imitating behaviour and bandwagon effects

• Herd behavior (fear of missing out etc.)

• Remuneration incentives lead to greed for size to increase manger income

• Achieving economies of scale (industrial revolution uses tech. assoc. with large invest. e.g railway)

• Mainly horizonatal M&A (1895.1904: 78.3%)

• Wave peaks in 1897

• Avoiding overcapacities

• => Monopolies/ Oligopolies

• Sherman Act didn’t avoid due to insufficiencies

• End of wave 1904

  • Stock market crash and subsequent banking panic deteriorated financing conditions

  • Supreme court sends signal for more antitrust policies

• Regulatory changes fighting monopoly power

  • 1911:Ruling to split up Standard Oil

  • Clayton Act to improve sherman

• Stricter regulation lead to more vertical M&A

  • value chain control

• Horizontal mergers to consolidate industires-> oligopolistic industries

• End of wave 1929

  • world financial crisis => Black friday

  • deteriorating financing coditions

• Acquisition of unrelated companies

• Economic boom of the late 50s 60s->rising stock markets

• Management models (Markowitz, pf theory)

• Diversification: Diversification of products and industries =>less risk? Conglmerate premium?

• Hope for independence from business cycle

• Financing mainly by stocks

• Large conglomerates emerge in USA

  => END of wave

  • Deteriorating economic environment, stock market downturn; 1968: court ruling to crack up conglomerates , 1969: accounting changes

• significant increase of hostile mergers / take-overs

• Massive increase of merger size, larger targets

• USA: deregulation, reduced taxation

• LBO preferential taxes for debt

• Finance driven M&As are dominating (LBO wave)

• Surging stock markets in the 1980s

• Corporate raider; increasing relevance of investment banks

• Consolidation of some industires (oil)

• Europe: preparation of domestic market

• Focusing on core businesses (divestiture, demerger)

• => End 1987/90: Stock market crash 1978, crash of junk bond market and mild recesison 1990

=> Reaction regulation: stipulations on debt financing of M&A

• Globalization, deregultation, digitization, shareholder value-strategy as drivers (industry shocks)

• “new economy”/new business models

• Mega mergers, merger of equals, international deals-> first international wave

• Strategic mergers, Consolidation as a target(snyergies)

• Friendly take-overs - increas of equity financing

• Dominating industries: software, telecom, internet, media

• Bad performance of mergers of acquirers:

  • => End 2000: stock market cash

    
    

• Transaction within industries

• larger SME involvement

• Interest rates: too long too low => cheap financing and abundant liquidity

• Debt finaced deals, less equity financing

• Return of financial investors, PE funds use cheap money

• Globalization: Integration of emerging markets

• Increase of hostile take-overs (PE)

• => End= financial crisis 2007-09

• Afterwards: Emergency transactions also in finacial industry

• Debt became more expensive

• Number and volume of deals decreased sign.

• Reduction of transaction size

• Withdrawn and renegotiated deals, emergency deals

• Distressed deals

• Increase of national transactions

• Cash financing increases (not necessarily related to financial crisis)

• Reduction of financial investors

• Government funds, governments instead of PE and investment funds

• Since then: M&A-market without driving dynamics, nevertheless volumes on elevated levels

• Since 2010: No surge in M&A transactions but slowly increasing and decreasing volume

• Increasing activities of soverreign funds and emerging

• Need for consolidation in some industries (telcom, helath, financial)

• Catch up: withdrawn or delayed deals of the financial crisis

• Low interest rates: perfect environment for debt financing

• PE investors

• Increasing stock markets: share of financing

Record levels of M&A activities

• overvalued M&As?

• During Covid?

• Dry powder at record levels

• Increasing operational capabilities

• Acquirig tech, talent, startups

• response to regulatory, supply chain, tariffs etc.

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