Business consolidations are now a part of the global business landscape. Waves of mergers.

1. WAVES OF MERGERS AND
ACQUISITIONS

2. PRESENTED BY:
NAME ROLL NO
Aditya Majmudar 525
Varun Machhar 526
Shikha Masalia 529
Shreya Masalia 530
Darshit Mehta 532
Krisha Mehta 533

3. INTRODUCTION
• Business consolidations are now a part of the
global business landscape.
• In 2016 – consolidations of businesses through
mergers and acquisitions have surpassed $3
trillion mark.
• 3 major type of business combinations :
consolidation
merger
acquisition

4. CONSOLIDATION
• In a statutory consolidation, two or more
companies decide to create a new company,
resulting in the dissolution of the previous
company.
• In simple words, smaller companies coming
together to form larger ones.
• Examples : Walt Disney Company and the
American Broadcasting company.

5. MERGERS & ACQUISITIONS
• Merger : it is a type of business combination
where an existing company takes over another
company (merged company).
• Purpose : increase of overall competitive
advantage, revenue growth, business growth,
entry into new markets, and cost reduction.
• Example : The Hindalco Novelis merger marks
one of the biggest mergers in the aluminum
industry.

6. MERGERS & ACQUISITIONS
• Acquisition : In an acquisition one company is
purchased by another company. Unlike in a merger,
there is no new company formed because the
purchasing company is retained and merely absorbs
the other company.
• The acquired company also retains its identity as a
business entity, but it will now be under the control of
the acquiring company.
• Example : In 2007, Tata Steel’s takeover European steel
major Corus for the price of $12.02 billion, making the
Indian company, the world’s fifth-largest steel
producer.

7. 1st WAVE
OF MERGERS & ACQUISITIONS
(1893-1904)
“ great merger movement ”

8. • Characterized by horizontal mergers.
• Firms that operate within the same industry or
field – often as competitors or rivals – combine
together.
• Often brought about by larger corporations that
are aiming for more efficient economies of scale.
“Thus, forming trusts became the norm”.
• Attractive to companies to monopolies and
market dominance.

10. 69
303
1208
340
423 379
142
79
0
200
400
600
800
1000
1200
1400
1897 1898 1899 1900 1901 1902 1903 1904
YEARS
NUMBER OF MERGERS

11. BENEFITS OF FIRST WAVE
(The period between 1893 - 1904, and immediately
before the beginning of World War I)
• The rise of manufacturing and transportation
giants in the United States, particularly in the
industries of steel, oil, mining and railroads.
• The telephone industry also benefited from
horizontal mergers.

12. PRIME EXAMPLES OF HORIZONTAL
INTEGRATION
• Standard Oil Company of New Jersey (1899). This
American oil and gas company was founded in 1870
but officially became a trust as the “New Jersey
Holding Company” in 1899.
• United States Steel Corporation (1901). This steel
company was founded in 1901 by merger/buyout of
Carnegie Steel Company, Federal Steel Company,
National Steel Company and J.P. Morgan. This made
it the largest steel producer, as well as the largest
corporation, in the whole world at the time.

13. END OF THE FIRST WAVE MERGER
• The first phase ended in failure as they could
not achieve the desired efficiency.
• The failure was fuelled by the slowdown of
the economy.

14. 2nd WAVE
OF MERGERS & ACQUISITIONS
(1916-1929)

15. • The second wave mergers that took place
from 1916 to 1929 . It focused on the mergers
between oligopolies, rather than monopolies
as in the previous phase.
• The monopolies created through horizontal
integration during the First Wave resulted to
the government intervening and enacting laws
that ban or prohibit what they referred to as
“anticompetitive behaviour”.
• Eg : The Standard Oil Company

16. • Vertical mergers are more efficiency-oriented;
rather than increasing revenue, the goal is to
reduce costs and improve a company’s overall
efficiency.
• This type of merger involves two companies
that are not competitors but collaborators.
• Overall, mergers of the second merger wave
were characterized by oligopolies rather than
monopolies. There were more vertical
mergers than horizontal mergers.

17. END OF 2ND WAVE
• The 2nd wave mergers ended with the stock
market crash in 1929 which started the
“Great Depression” which led to a world-wide
depression in the following years.
• The tax relief that was provided inspired
mergers in the 1940s.

18. 3rd WAVE
OF MERGERS & ACQUISITIONS
(1955-1975)

19. • Due to the “Great Depression‟ and the
following Second World War, the activity on the
M&A market slowed down significantly. The
new wave started only in the 1950‟s and
coincided with further restrictions which
needed to prevent anticompetitive mergers and
acquisitions.
• The method of diversification led to the rise of
conglomerates, which are large corporations
that consists of numerous businesses not
necessarily related.
• Example of a conglomerate is General Electric,
which has interest in a vast number of
businesses including healthcare, transportation
and energy.

20. • Diversification can be a method to reduce the
cash flow volatility through reduction in the
exposure to industry specific risk.
• The conglomerate will be less vulnerable to
shocks in one industry because it generates
income in different, maybe unrelated, industries
so that loss of income in one industry can be
offset by other industries. Due to conglomerate
creation, growth opportunities in unrelated
businesses can be exploited.
• Finally, a conglomerate will create its own
internal capital market which is especially useful
when outside capital is expensive. The
diversification process also led to changes in the
market structure.

21. • Chandler (1991) with his concept of the
Multidivisional Enterprise stated that:
“structure follows strategy and the most
complex type of structure is the result of
concatenation of several basis strategies”.
• Interpretation can be that the strategy of
corporations leads to changes in the market
structure. The diversification led to an
increased distance between the managers at
the headquarters and the divisional managers.
• Besides possible inefficiencies associated with
increased communication lines, the addition of
the numerous businesses also led to a decision
overload at the company headquarters.

22. • Whether the third wave began due to the
stricter enactment of antitrust laws which led
to increased diversification and “empire‟
building is still up for debate.
• The third merger wave slowed down and the
end of the 1970s and collapsed completely in
1981 when there was an economic recession
due to a significant oil crisis.