Thursday, May 31, 2007

The Sixth Merger Wave – Who’s Next?

As predicted in my previous post, US is undergoing an aggressive phase of consolidation specially within the financial and technical(IT) and auto industries। A record of 25 deals with a value of $10 billion or more have been announced so tar in 2006, up from 15 such deals in the same period of 2005. Unlike the fifth merger wave, this seems to be a phase of acquisition where the firms, more than realizing synergies, are prompt in achieving economies of scale and scope. The conditions seem similar to the First Period of merger waves– 1893 to 1904, although at much larger scale. The characteristics and trends of this wave are as follows:

Financial Industry: The exchanges are going through a consolidation phase, where the trend seems to be towards forming oligopolies at an international level. The antitrust, isn’t a problem as it is not recognized internationally (For example, UK has a blocking statute within their jurisdiction). Interestingly, the group of IB’s had a frail attempt to achieve economies of scope by taking advantage of stock market frenzy.

The most recent trend seems to be in the acquisition of the brokerage firms, again to achieve economies of scale and creating strategic adjacencies (mostly geographic in nature).
Technical industry(IT): An acqusition would seem quite obvious for Google who has more than 30% cash(3.544 billion) sitting on the balance sheet against a net income of 3.2 billion and a whooping RE of 5.1 B. Plus no dividends to shareholders EVER! Google recently bought Youtube, GreenBorder Technologies, which focuses on protecting e-mail and Web users from malicious or unwanted computer code, and Panoramio, a community Web site that allows people to “map” their photos on Google Earth.(I wonder what else can they do with that money, to satisfice the high growth expectations by shareholders (see A comparable here would be a much-talked-about cash-rich MSFT, who recently bought aquantive for cheap. MSFT has a 6.1B in cash against a NI of 12.5B . Any creative/interactive website like Technorati make a hot deal for the future.
Manufacturing-Industry: The airlines and the auto companies struggling with bankrupsy, are looking for consolidation fro rescue.

NYSE Euronext Deutsche Boerse (Germany) CME CBOT ISE LSE NASDAQ OMX sweden Instinet Archipelago WACHOVIA Bank of America Raymond James Financial Stifel Financial, Business per agent A.G. Edwards Golden West Western Financial MBNA Credit Card Bank’s parent company RACE IN BROKERAGE ACQUISITIONS ]


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