The transition during a merger and acquisition period often comprises of a series of waves. The industry experts have still not been able to decipher the whys behind this, but it is probably because of the economy. Up till now, the United States of America has experienced five major merger waves which rose and then plummeted. The first of these took place in the 1920s when the Great Depression forced it to come to an end. The next one was experienced in the 1960s, and from the 1980s there has been a merger wave in every decade. The professionals in the industry have now predicted that a sixth wave is soon to come.
There is not much evidence regarding this, but analyzing the current period, and the periods before which a merger wave hit in the past, quite a few similarities can be found. A very popular deal regarding two major airlines was about to take place this year, but now has been delayed. Similarly, two major advertising groups announced a merger valued at $35 billion in July, but right after another deal took away all the attention. In the month of September, there was a major $130 billion deal in the telecom industry.
Considering the first nine months of this year, the value of all M&A deals has been higher than the numbers that were recorded during the same period last year. The next few months are what the industry experts are regarding as the third phase of the merger wave.
A merger wave can be broken down into four main phases. In the first of these, the economy is not in good condition, and there are limited deals. In the second phase, the economy improves and so the number of deals rises. The speed is not much since the risks cause confident buyers to back out.
The third phase enjoys a steep increase in activity often regarded as the merger boom. It is in this phase, the premiums which the acquirers have to pay rise rapidly. Eventually, they increase by as much as 100% and the fourth stage appears, setting the stage for catastrophe. With the rise of premiums, the deals become bad leading to an end of all mergers for the time being.
In the initial phases, almost one third of the deals are successful but in the ending phases, most of the deals are bound to fail because a lot of bad decisions take place.
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