Merger Waves, Arms Races, and the Cold War

Posted on Sunday, 3 June 2007. Filed under: Business History, Commentary, Mergers |

There were some e-mails asking more about the references to the various merger waves, and especially as to when this current merger wave will be over (as discussed in the post on Scenario Planning, two posts below this one).  To understand these merger waves, it is important to look back at history and also the parallels with the political attempts at takeovers — wars. 

In many ways, the merger waves are not dissimilar to the military battles of the 19th and 20th Century, as we explain in our book:

Merger activity tends to take place in waves – a time of increased activity followed by a period of relatively few acquisitions.  Each wave has been stimulated by events outside the merger world, but which have had a significant impact on the level of merger activity.  Each wave is sharply distinguished from earlier waveswith creative new ways of consolidating companies and defeating the defenses of targets, although each wave built on the merger techniques and other developments from the previous wave. 

There is also the tendency, as with the military, of preparing to fight the last war’s battles.  Just as the Maginot Line couldn’t stop the Third Reich’s panzers as they rolled through Belgium and into Northern France, it is not sufficient for a company to have out-of-date takeover defences.    Strategic initiative or power does not guarantee success to the bidder, as the United States learned militarily in Vietnam in the 1960’s and in Iraq in the 1990’s and 2000’s.  The parallel in business usually means relying too much on a large chequebook and first mover ‘advantage’ as Sir Philip Green discovered in 2004 when trying unsuccessfully to take over Marks & Spencer.

Merger activity can be likened to the Cold War arms race where one country’s development of new weapons stimulates the development of more sophisticated defensive systems, thus forcing the first country to make further advancements in their offensive weapons to remain ahead.  In the M&A arena, as acquiring companies have developed more sophisticated tools to make the acquisition of companies more certain, faster, easier, or less expensive, the advisors to the target companies have designed stronger defences for their clients.  These defences have then stimulated further activity to create better acquisition methods.  Just as with the arms race, the process becomes more complicated and expensive for all the players.

Knowledge of previous takeover techniques is therefore important for any bidder or target – and is a critical aspect in the application of business intelligence. 

The impact of military intelligence on many of the battles and wars of the 19th and 20th Century is well-known.  There’s much to be learned from them in applications to the current M&A deals.  Maybe is some of the ego and hubris of the architects of the deals in the current merger wave were eliminated – and a bit of considered thought was given to the lessons from the past not just in business – we could and would see an improvement in deal success.


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