Sunday, May 24, 2009

THE BIGGER PICTURE: MERGER TRENDS UNDER GLOBALISATION

The last twenty years have witnessed perhaps the most drastic process of corporate consolidation in history. Since the middle of the 1980s, the rate of global merger activity has risen exponentially (see Figure 1). Between 1980 and 2000, the value of global mergers rose 100-fold, reaching $15 trillion by the Millennium.


In 1999, the number of merger deals announced was triple what it had been a decade earlier, and 30 times what it was in 1981 – although there has been a marked slowdown since the burst of the dotcom towards the end of 2000 and subsequent downturn in the global economy.

Just as significant as the volume and value of merger activity in this timeframe was the nature of the deals being negotiated. Whereas the great majority of deals up to the 1990s took place within national boundaries, the last decade or so has witnessed a marked increase in the number of cross-border mergers. While international deals represented less than 20% of total merger value in the early 1980s, the proportion had risen to 33% by the Millennium.

While M&A activity has been widespread across numerous sectors, the industries most affected have been telecommunications, pharmaceuticals, media, automotives, energy, utilities, defence, food retail, and financial services. This has reflected not only a more ambitious growth agenda of trans-national corporations in recent years, but also an increased incentives for global amalgamation brought about by the integration of financial markets, trade liberalisation, deregulation and privatisation of national industries that have been the hallmark of neo-liberal economic globalisation. Companies have also sought to create synergies between closely linked areas of business activity, and realise efficiency gains through economies of scale.

Ironically, corporate consolidation has also been self-perpetuating, with big mergers following other big mergers as companies struggle to keep pace with their larger competitors. This, as we will see, has been one of the major concerns of government authorities seeking to ensure that corporate takeovers do not trigger a snowball effect that leads to rapid concentration in markets.

Another (unsurprising) feature of corporate mergers is that the vast majority of large deals over recent years have involved companies in Western Europe and North America. However, developing country firms have become popular targets for large multinationals. As Western multinationals grow ever-larger – and privatisation and liberalisation continue to open up new investment opportunities – companies in developing nations are being increasingly targeted by TNCs. This is reflected in the fact that cross-border mergers and acquisitions made up roughly 85% total foreign direct investment by the end of the 1990s.

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