The Global Phenomenon of Mergers and Acquisitions

WS
Apr19

Why is there such a proliferation of mergers and acquisitions (M&A) in recent years? In order to answer this question, you first must know why companies merge or are acquired. In the 1970s and 1980s, it was rare to hear anyone talk of one company buying another company. But today, there are a few stable companies that have merged with their competition to make global conglomerate organizations.

Knowing what is happening in terms of mergers and acquisitions within the market is critical to navigate major shifts in your business and competition. Never before has there been such a surge of mergers as there are today. Hundreds of telecom companies have merged or are in the process of merging. The same phenomenon is occurring within the airline industry, while twenty and even ten years ago, there was fierce competition between American airline companies.

To understand why there are so many M&As, you must first understand that mergers are a result of the dynamic global economy. The Internet has done wonders for shrinking our markets and that’s a good thing. Now, companies are not just competing with those in their state, region, or nation—they are competing with global markets in Brazil, Germany, China, and so on. A business that is not successful in Europe may be wildly successful in Japan.

Take a look at Fiat and Chrysler, for example. Ten years ago, few Americans knew what a Fiat was. Those Americans who traveled could identify Fiat as a little Italian car, but this wasn’t common knowledge. Fiat had a minor presence in the U.S. market from 1908 – 1917. Fiat left when the U.S. entered WWI and returned in the 1950s only to leave again in 1983. In January 2009, Fiat acquired the controlling share of Chrysler and with that acquisition; Fiat became a household name in the U.S.  At one time, Fiat served only Europe and South America. Now, with their new product and partnership, they are serving the U.S., Africa and Asia as well.

M&As are great for the consumers because they have more choices now. It also positively influences the economy because companies gain a new vertical market where it can foster continuous growth and market its business. In Fiat’s case, prior to the merger, the CFO couldn’t see profits ever coming from Beijing, but now they have a plant in the Hunan province, and as of 2013 they started rolling out the production of cars.

Overall, M&As are good; however, they do come with some hard decisions to make and can be bad or even ugly in certain situations.

The Good

While M&As do have a negative side, the good far outweigh the bad.

  • M&As create movement and competition in the global economy and more choices for the consumer.
  • M&As make good products available all over the globe and benefit the growth of the economic environment.
  • As an example, Verizon bought Terremark in 2011 for 1.4 billion. Four years later, Terremark is on the auction block and Verizon is hoping to fetch more than $9.5 billion for the sale. The sale represents the latest effort by Verizon to streamline its portfolio in order to focus on its core business. M&As are a good thing and make life easier for the consumer.

The bad

Turmoil and duplication in job titles and job duties may result in job loss.

  • In M&As, there may be two executive assistants, as an example, doing the same job. One will typically have to be let go or transferred within the company. If this involves large companies, there could be massive layoffs.
  • In many cases, the company doing the acquisition only takes the part of the company they want and the rest of the acquired company is quickly phased out including the employees and their retirement benefits.
  • Layoffs are bad for the economy. The unemployment rate goes up and families struggle to find jobs and to survive.

The Ugly

The biggest danger—largely prevented by current federal regulations—is the prospect of monopolies.

  • In 2014, Comcast was set to merge with Time Warner Cable. Comcast shareholders as well as Time Warner shareholders approved the merger. Their next step was to ask the Federal Communications Commission (FCC) for approval. Both the FCC and the United States Department of Justice (DOJ) needed to approve the merger, but that did not happen.
  • The proposed Comcast-Time Warner Cable merger consistently faced rigorous opposition from the public, industry players, public interest and consumer-advocacy groups. The public was unwilling to put that much power in the hands of a single company. The newly formed organization would be offering Internet and cable services to two-thirds of the country’s homes. To make it worse, Comcast readily confirmed that prices would go up. That kind of merger would not help the economy; it would hinder it. The merger never happened. FCC Chairman Tom Wheeler stated, “The proposed merger would have posed an unacceptable risk to competition and innovation especially given the growing importance of high-speed broadband to online video and innovative new services.”
  • In the past few years, four or five companies tried to buy T-Mobile, only to be stopped dead in their tracks by the FCC. Monopolies are ugly, as they bring about higher consumer prices.

As long as the government is monitoring acquisitions and mergers, they make sense for business and our global economy.

Are You a Big Fish or a Little Fish?

Know your competition. The market is a vast ocean with constant movement underneath. If you are the business floating happily above, oblivious to the life churning under the surface, then you are surely going to be eaten by a bigger fish. In order to succeed in today’s market, you have to be willing to make a foray into our mass global market.

Once you identify your competition and learn to treat them with respect, you will have a better chance of becoming a successful business. Think of it this way: either a bigger business will buy you out or your business could be the bigger fish swallowing the smaller competition. I love the market today. There is always promising opportunity in the distance. Find it and go for it!

Benjamin Von Seeger is an entrepreneur, frequent C-suite member and telecommunications veteran with twenty years of global business experience. His book The RiVal: Play the Game, Own the Hustle, Power in Competition, Longevity in Collaboration (out now) draws on vast personal experience and proven philosophy to inspire a new generation of businesspeople and students. Visit his website BenjaminVonSeeger.com and follow Ben on Twitter @benvonseeger.
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