Successful Mergers and Acquisitions Changed Course of National Economy (Part 2 of 2)

August 24, 2011

By John Hallal
Partner, Accelerated Law Group

American business made steady advances after World War II. Even into the 1960s, many of the companies and oligopolies formed in the first two waves of mergers enjoyed household brand status. Moreover, mergers of retail companies, hotels, and even newspapers forged new strengths that led the new organizations to strong profits.

Although mergers continued throughout the 20th century, the period known as the third wave of mergers began about 1965 and lasted for about four years. One of the most interesting things about the third wave of mergers lies in the fact that in most cases, smaller firms targeted large companies during this time. Antitrust laws added difficulty for larger companies to snap up smaller ones, but these same laws allowed minor entities to use equity financing to expand their businesses.

During this period, companies began to venture into business lines completely unrelated to their own. In some cases, firms chose to acquire organizations deemed lucrative or emerging to diversify their assets and to smooth out bubbles or gaps in the industries’ profitability.

Many people remember the fourth wave of mergers because the event occurred globally and eliminated a number of well-known brands. Deregulation of a number of industries, combined with emergence from the U.S. economic recession of the late 1970s, resulted in mergers and acquisitions that included takeovers of underperforming business models, especially in such industries as airlines, pharmaceuticals, banking, and oil and gas.

The companies that emerged as dominant in the fourth wave operated under more successful models or in more profitable markets than their competitors. This wave ended in the early 1990s when the U.S. government enacted reforms for financial institutions and antitakeover laws.

The fifth wave of mergers occurred as a result of a stock market boom from 1992 to 2000, as well as globalization sparked in part by communications and deregulation of new industries. Most of these mergers took place in the telecommunications and banking industries and were financed by equity. When the “tech bubble” burst in 2000 and stock prices became uncertain, this wave ended.

Today, new funding mechanisms, as well as historical understanding of mergers and acquisitions, enable companies grounded in smart financial and operational modeling to access funding from banks, venture capital, and angel investor organizations. While the government requires banks to make loans based on proven financials and assets, these new funding mechanisms recognize the special requirements and potential of organizations that promise new solutions and improved delivery of existing products.

About the Author: An accomplished attorney with significant experience in mergers and acquisitions, John Hallal practices law in Boston as a Partner in Acceleration Law Group.

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