Why are mergers and acquisition becoming so prevalent in today's market?

Question

People seem to be responding with the answer that M&A are steady? This seems to be erroneous considering the shear amount that are occuring today and the fact that private equities seems to be buying out much larger companies. I understood it better when this ramp up was happening in 2000, but recently with news that the economy is slowing down, I don't quite understand the reason why. Shouldn't companies be a lot more cautious now? What's the motivating factor?

Answer 1

My first response is that there have always been cycles of M&A activity. I remember some prominant 'raiders' like Pickens and Icahn used to scare companies silly. I worked at one, Phillips Petroleum, for a while. When Pickens was supposedly trying to do a leveraged buyout (borrowing money on the value of the stock he was buying in order to buy it), the company started looking for a 'white knight' someone they would rather sell to that would be more gentle with them (some marriages are built like that). Then they decided to buy back enough of the company's stock so that an outside couldn't get the controlling interest. That made the folks in Bartlesville, Oklahoma happy, because then there would always be a Phillips, presumeably always in that town (especially after they pulled all those strings to stop Cities Service, Citgo today, from building their big office of several decades ago in Bartlesville). Then Phillips merged with Conoco, a Dow (or was it DuPont, I forget) cast off (a previous merger to escape a raider). Then the center of power shifted out of Bartlesville and the locals realized how stupid they were to let the one company rule that roost.

Today, the big companies require an enormous amount of capital, so private corporations are funded for the purpose of taking under utilized and under managed companies out of the public scrutiny. They give the companies a break from stockholder pressures which are more concerned with dividends and stock price appreciation than how well the company does the business it is in business for doing. Without the public pressure-cooker, the private companies let their new acquisition grow for a time--then spin them off when they are then much more valuable.

The raiders would have sold off pieces, stripping the synergistic values when they perceived that the sum of the parts is more valuable than the whole. Today's private equities are more likely to turn an old draft horse, plodding along with a wagon, into a race horse. The transition is a lot of work, but the result is a lot more valuable and the value didn't have to come from killing the horse.

Answer 2

Have you noticed you get much better service from your cable company over the past few years...? Satelite TV service. Have you noticed Blockbuster has been advertising about new and better service lately? Netflix Have you noticed all the fast-food outlets have adopted a "$1.00" menu? All of these examples and many more (not to mention their creation, development and distribution) have been brought to you Via.... You guessed it! Competition! Now... if we could just get a chance to apply this principle to the public education system, "Johnny" might learn to read. Vouchers! Corporations are getting bigger and better through mergers and acquisitions because they COMPETE! Its Capitalism that drives competition. Its Government that squashes it. Post Script: The wonderful list of advancement brought to you via Government product development and creation.. ahhhh..... Hmmmm. People on welfare? Warm regards, Douglas

Answer 3

As so many have said before me, "becoming?". We have boards of directors who care nothing about the companies they oversee. They are out to raid the liquid assets of any company they can get their hands on. Anything with a pension fund or whatever that can be liquidated and turned into a golden parachute suits them. They could care less if the business fails after they raid the pantry.

Answer 4

because the companies have money. The economy has been very good for a few years. The companies have a ton of captal and are will to spend.

Answer 5

They have always been there but these days you know more because of the media and now we have more small scale industries trying to make it big and hence acquisitions occur.

Answer 6

Because in stock investing , the road to success is paved with the bones of bodies of others, watch the movie "other peoples money" for stock investing info try the link http://stock-investing-info.com/

Answer 7

When a business is "cash rich" they need to put their money into something that defers taxes and nets them additional profit.

Answer 8

When weren't they? They are part of how our ecomony operates and have been going on longer then I can recall.