Over the years, corporate mergers have occurred in distinctive patterns. Some periods were characterized by very intense merger activities where as others were characterized by lesser merger activities, some more successful whiles others witnessed rampant failures.
Upon observations by M&A specialists and Historians, five merger patterns have been identified in the history of the U.S.A and each of these have their own major features.
The five Merger Waves
First Merger Wave
The first Merger Wave is documented to have occurred after the Depression of 1883, between the years of 1897 and 1907.
During this period, majority of merger activities – about two thirds of them – were concentrated in a few industries which were mainly the dealers in petroleum products, metals, mining, transportation, and food products. These industries also became highly concentrated because most of the mergers were horizontal mergers.
The period was characterized by so much monopoly that it became an issue of concern. A good number of monopolistic firms were charged by the Justice Department with violating the Sherman Antitrust Act (1890). Governments therefore intensified their vigilance and increased scrutiny on mergers.
Second Merger Wave
The Second Merger Wave lasted between the years of 1916 and 1929. It began during the period of the World War I and persisted until the stock market crash of October 29, 1929.
Due to the heightened Government vigilance that emerged towards the end of the first Merger Wave, the Second Merger Wave endured an even greater and increased Government scrutiny. In addition to the Sherman Antitrust Act, federal authorities used the Clayton Act (1914) against uncompetitive mergers.
Unlike the first, the period of the Second Merger Wave was characterized by oligopolistic mergers rather than monopolistic ones. More vertical mergers, other than horizontal ones, were formed.
Third Merger Wave
The third Merger Wave lasted a brief period from 1965 to 1969. It was a period of great positive economic growth and development in the United States.
Due to the high economic prosperity in that period, firms had acquired so much wealth that they could afford to acquire other companies. In this period, many mergers that involved unrelated companies were formed – these are also referred to as conglomerate mergers.
All horizontal mergers that occurred during this period were subjected to stringent antitrust law enforcement. The Celler-Kefauver Act (1950) – which reaffirmed the Clayton and Sherman Acts) – was the main weapon used for this purpose.
Fourth Merger Wave
The period of the Fourth Merger Wave coincided with the economic prosperity of the 1980s which occurred during the presidency of Ronald Reagan.
Despite the fact that this period saw the formation of most friendly mergers, it was also the period where there were a greater number of hostile takeovers than in any of the previous merger waves. These hostile acquisitions led to the term ‘corporate raider’.
These mergers were much larger than the ones formed in previous periods, the formation of billion-dollar mergers became common, and debt-financed merger creation became rampant.
Fifth Merger Wave
The Fifth Merger Wave lasted from 1993 to 2000, a period after the economic slump of 1990 to 1991.
The rate at which large mergers were formed was about the same level as that of the Fourth Merger Wave. However, there was a major decline in the rate of hostile takeovers. As compared to the Fourth Merger Wave, creation of debt-financed mergers had reduced too.