The Economist on increasing M&A activity and ‘merger waves’

This week’s The Economist includes an article on ‘merger waves.’ As it explains, “Merger waves mean that markets can consolidate rapidly. The next one is coming.”

The article draws on recent research examining the drivers of waves of M&A activity, including:

  • Shocks, including technological shifts such as the rise of the telephone or the internet;
  • A slump in demand, which drives spare capacity;
  • Regulatory and deregulatory changes; and
  • Financial conditions.

The article explains that “conditions are now aligning for a perfect merger wave. A global shock has hit most industries, and there is plenty of spare capacity. Many businesses, particularly in Europe, face deregulation as lagging economies seek to boost competitiveness through structural reform. The merger impulse is there. Many firms are already sitting atop piles of cash.”

The article concludes that “industries that are fragmented, have firms with dispersed levels of performance and have been hit hardest by shocks are most likely to see mergers,” and identifies construction, banking, and gold mining. Our research has identified other likely sectors in the UK – Business Services, Technology and some sub sectors of Healthcare.

The research papers cited in the article are available here.

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