Merger:
A merger can be defined as an agreement that unifies two existing firms into a single new firm. Mergers can be of different types and can occur due to different reasons. However, the primary reasons why mergers and acquisitions occur are to expand the reach of a firm or diverse the firm into divisions or earn more profits.
To determine:
The concept of merger waves.
Answer to Problem 1CC
Merger waves are peaks of heavy activity followed by quite troughs of certain transactions.
Explanation of Solution
Merger waves can be defined as peaks of major activities carried down by a firm followed by quiet troughs of a limited number of transactions. Such activities are in correlation with the bull market and occur primarily in economic expansion as compared to economic contractions.
The presence of merger waves was first noticeable about due to the economic expansions that occurred during the time. The economic and technological conditions that were chiefly responsible for the expansion in the economy are most likely the drive peaks in these merger activities.
Consider the chart given below to analyze the merger waves in the economic history across the world.
Period | Name | Aspect |
---|---|---|
1897-1904 | First Wave | Horizontal Mergers |
1916-1929 | Second Wave | Vertical Mergers |
1965-1969 | Third Wave | Diversified conglomerate mergers |
1981- 1989 | Fourth Wave | Hostile takeovers, Corporate Raiding |
1992 - 2000 | Fifth Wave | Cross-border mergers |
2003 - 2008 | Sixth Wave | Shareholder Activism, Private Equity |
Table-(1)
Hence, it can be concluded that merger waves are peaks of heavy activity followed by quite troughs of certain transactions.
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Chapter 22 Solutions
Fundamentals of Corporate Finance (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
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