Chapter 22, Problem 1CC

Summary Introduction

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)

Conclusion

Hence, it can be concluded that merger waves are peaks of heavy activity followed by quite troughs of certain transactions.