Introduction to Corporate Finance

21: Mergers, Acquisitions and Corporate Control

merger of Continental and United Airlines. Finally, a conglomerate merger joins two companies in different

lines of business. General Electric was formed by mergers that took place over decades, with the resulting

conglomerate company producing everything from washing machines to jet engines to nuclear turbines.

21-1 MERGER WAVES AND INTERNATIONAL

ACQUISITION ACTIVITY

In some years, merger activity reaches such a frenzy that there seems to be daily news of yet another

dramatic offer from one company to buy another. In other years, activity slows down, often in response

to a weak economy. These ebbs and flows in acquisition activity are known as merger waves. As one of

the largest M&A markets, the United States provides useful historical data with which to analyse these

trends. For example, we see in Figure 21.1 that US M&A activity increased dramatically throughout

the 1990s, reaching a new high in 2000, near the peak of the internet/technology bubble. Acquisitions

then decreased (in both value and number) during the recession of the early 2000s, only to pick up again

in the mid 2000s and then drop once more during the 2008–09 recession. Activity then began to pick

up gradually, from early 2010. However, although the 2015 data is incomplete (the data was collected in

conglomerate merger

Unrelated diversification

mergers that occur between

companies in completely

different lines of business

FIGURE 21.1 REGIONAL TRENDS IN M&A ACTIVITY: BY TOTAL VALUE OF M&A TRANSACTIONS AND BY TOTAL NUMBER OF TRANSACTIONS

0

5000

10, 000

15, 000

20, 000

25, 000

30, 000

35, 000

40, 000

45, 000

0

500, 000

1, 000, 000

1, 500, 000

2, 000, 000

2, 500, 000

3, 000, 000

3, 500, 000

4, 000, 000

4, 500, 000

19841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015

Numb

er of D eal s

Deal Val ue (US

D millio

ns)

Completed Global M&A Deals

(by Year of Announcement)

Deal Value Number of Deals

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10, 000

0

100, 000

200, 000

300, 000

400, 000

500, 000

600, 000

700, 000

19841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015

Numb

er of D eal s

Deal Val ue (US

D millio

ns)

Completed M&A Deals involving A sia Pacific Companies

(by Year of Announcement)

Deal Value Number of Deals

0

2000

4000

6000

8000

10, 000

12, 000

14, 000

16, 000

18, 000

0

500, 000

1, 000, 000

1, 500, 000

2, 000, 000

2, 500, 000

19841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015

Numb

er of D eal s

Deal Val ue (US

D millio

ns)

Completed M&A Deals involving North American Companies

(by Year of Announcement)

Deal Value Number of Deals

0

2000

4000

6000

8000

10, 000

12, 000

14, 000

16, 000

18, 000

20, 000

0

500, 000

1, 000, 000

1, 500, 000

2, 000, 000

2, 500, 000

19841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015

Numb

er of D eal s

Deal Val ue (US

D millio

ns)

Completed M&A Deals involving European Companies

(by Year of Announcement)

Deal Value Number of Deals

Notes: 1 Data for 2015 is incomplete (figures provided are up to 7th December 2015).
2 Data provided for each region includes deals with any connection to the region. Thus cross-border transactions will be included as separate deals under all regions involved, and the
regional data sets are not mutually exclusive
Source: Data to create figure sourced from SDC Platinum, Thomson Reuters, 7 December 2015.