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.

By John Hallal

While some people call for doom and gloom during an economic downturn, we can take some solace in the fact that the U.S. economy has always experienced cyclical changes. In many cases, a downturn has enforced adjustments due to particular industries or business models. Some of these modifications triggered mergers and acquisitions that paved the way for companies to expand their footprints or product lines and for others to gain access to capital to fund growth in their core markets.

The first wave of mergers as we know them today occurred between 1897 and 1904. During this span, monumental horizontal mergers solidified companies that held major market shares in such industries as telephone service, oil, railroads, and mining. By affirming brand recognition and creating a major network of consumers and suppliers, these companies effectively pushed their challengers out of business or allowed them to snap up rival firms. Companies formed in the first wave of mergers include AT&T, DuPont, and U.S. Steel, but more than 1,800 small companies united to form organizations capable of developing infrastructure that would allow emerging technologies and production to meet consumer demand.

A later economic slowdown reduced the efficiency of mergers. By the time of the Panic of 1904, which was spurred by concerns about the nation’s banking system, banks struggled and the public felt wary of what the media touted as “big business.” Companies simply lacked the financing to continue merging. Moreover, a 1904 antitrust decision by the U.S. Supreme Court permitted the prevention of anticompetitive mergers under the Sherman Act.

While building monopolies may have motivated the first wave of mergers, the second wave related to creating oligopolies. This movement, which occurred from approximately 1916 to 1929, featured companies in such industries as foods, petroleum, transportation, chemicals, and metals banding together to create economies of scale aimed at increasing production and exports. The federal government approved these mergers because of the businesses’ impact on the American cause in World War I and because of economic benefits.

The 1929 stock market crash ended the second wave of mergers. By the 1940s, government tax relief and economic improvement prompted new interest in mergers similar to those of the second wave.

About the Author: John Hallal enjoys a reputation as an expert in mergers and acquisitions. In addition to his work as a Partner in the Acceleration Law Group and as a Managing Partner at Network Blue, Inc., Mr. Hallal serves as an Adjunct Professor at Babson College, where he teaches a course in mergers and acquisitions.