The development of corporate takeovers and mergers is fascinatingly illustrated by the history of mergers and acquisitions (M&A). It dates back to earlier periods when businesses looked for methods to expand and solidify their positions. Let’s take a closer look at this historical development.
M&A’s historical origins in the US go back further than just the 19th century. The unification of Italian banks in 1784 and the merging of the East India Company in 1708 are two notable early examples. These early instances show how commercial partnerships have historically been done.
The United States experienced the Great Merger Movement in the late 19th and early 20th centuries, when smaller companies with lower market shares merged to form dominant enterprises. One noteworthy result is the Standard Oil Company, which formerly held about 90% of the world market for oil refineries. Many mergers and acquisitions occurred during this time, resulting in the closure of over 1,800 businesses as they increased their market share.
One of the main short-term drivers of mergers was the need to maintain high prices and lessen the impact of declining demand, which was partly caused by the Panic of 1893. As a result, producers frequently engage in price wars to maintain their market share. Companies aim to boost productivity and lower transportation costs in the long run. Larger companies grew as a result of economies of scale and technological breakthroughs. Still, some successful mergers were subsequently undone by antitrust laws like the Sherman Act of 1890.
The history of M&A can be broken down into discrete waves, each with its own particular patterns and goals. These waves show how corporate combinations have evolved throughout time, from horizontal mergers to massive cross-border mergers.
To expand their capabilities and reach, organizations have concentrated on purchasing businesses in complementary industries or the same industry throughout recent waves of M&A. Cross-sector convergence, or the acquisition of IT companies by retailers, has increased in frequency.
These days, businesses are becoming more and more interested in obtaining intangible assets such as talent, market share, patents, and licenses. Compared to typical tangible assets, the integration of these “soft capital” assets calls for a new methodology. Recent waves of M&A activity have been significantly shaped by factors like shareholder activism, high cash flows, globalization, and private equity.
The bankruptcy of Lehman Brothers and the collapse of the housing market signaled the end of the sixth wave of mergers, which culminated in the financial crisis that started in 2007. Significant effects of this crisis were felt by the world economy.
Tax optimization, corporate spin-offs, and the impact of monetary policies from central banks are some of the elements that continue to alter the M&A landscape in the current seventh wave of M&A.
The top ten M&A transactions in history have changed economies and sectors, with a combined value of over USD 1 trillion. The dynamic world of mergers and acquisitions that exists now is the result of the intricate interaction of economic, technological, and regulatory variables, as this tour through M&A history illustrates.