Mergers, Acquisitions, and Corporate Restructurings

By Patrick A. Gaughan | Go to book overview

PREFACE

The field of mergers and acquisitions continues to experience dramatic growth. Recordbreaking mega-mergers have become commonplace in the 1990s. This is particularly impressive in light of the fact that the decade started off with the number and value of mergers and acquisitions being well below the lofty levels set in the fourth merger wave of the 1980s. That period featured many headline-setting hostile deals and leveraged buyouts. Many of these notable leveraged buyouts ended in bankruptcy when the economy entered the 1990–91 recession. The pressure of the heavy debt service proved too much for some of these deals that appeared questionable from a strategic point of view.

The 1990s features one of the longest economic expansions in U.S. economic history. With the expanded demand from a growing economy, companies are increasingly using mergers and acquisitions as the fastest way to take advantage of the increased market opportunities. Through mergers and acquisitions, companies can quickly expand their capacity and/or market new products.

The deals of the fifth merger wave seem to have more of a strategic focus than the transactions of the 1980s. Break-up transactions designed to provide a quick return for the dealmakers are uncommon. Rather, the deals of the 1990s claim to have more of a strategic focus.

Firms in several industries were consolidated in roll-up transactions which resulted in more of an oligopolistic market structure. Even though the number of competitors declined, the deal participants often did not appear to gain market power. Instead they sought cost reductions through scale economies and expanded market opportunities.

Although many companies are pursuing an expansion strategy that includes mergers and acquisitions, many others are relying on corporate restructuring to become more efficient. For some companies, this may mean selling off prior acquisitions or divisions that no longer pull their weight. For others, it may mean more drastic restructuring, such as through the bankruptcy reorganization process. The world of mergers and acquisitions of today includes a prominent role for corporate restructuring.

Many of the methods that applied to deals of prior years are still relevant, but new rules are also in effect. These principles consider the mistakes of prior periods along with the economic and financial conditions that are in effect in the 1990s. It is hoped that these new rules will make the mergers of the fifth merger wave sounder and more profitable than those of prior periods.

The focus of this book is decidedly pragmatic. I have attempted to write it in a manner that will be useful to both the business student as well as the practitioner. Since the world of mergers and acquisitions is clearly interdisciplinary, material from the fields of law and economics is presented along with corporate finance, which is the primary emphasis of the book. The practical skills of finance practitioners have been integrated with the research of

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