Mergers and Performance

J. Fred Weston

University of California at Los Angeles, Anderson Graduate School of Management from Anderson Graduate School of Management, UCLA

Abstract: Much concern has been expressed about the economic consequences of the high rate of merger and acquisition (M&A) activity. The total value of M&As in the United States in 1998 was $1.3 trillion. This was almost double the level of activity of the previous year. Is the accelerating rate of M&A activity a part of an economic bubble? Do shareholders of acquiring firms inevitably lose? Is M&A activity creating job losses and unemployment? These are some of the concerns that have been raised about M&A activity. This paper presents five main messages: I. M&A activity is a response to major change forces. II. The change forces have increased the intensity of competition among business firms III. Because of the increased intensity of competition, business firms have been required to adjust and to adopt many forms of restructuring activity. IV. At least 50% of M&A activity has improved returns to shareholders. The odds of succeeding in mergers increase when mergers are well conceived and implemented effectively. V. Increased M&A activity has been associated with outstanding performance in the U. S. economy.

Date: 1999-04-29
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