2005: Year of the Deal?
An editorial in a recent Business Week ("Here Comes the Year of the Deal", 1/10/2005) predicts that the upcoming year will see a major uptick in mergers and acquisitions. The prediction is based on three factors: the increase of deals in the last quarter of 2004, an increase in cash and short-term assets, and the decline of the dollar, which makes European purchases in the US all the more affordable. In addition, "the announcement of a few big deals is quickening the pulse of corporate managers, who are scouting for potential merger or acquisition targets, lest they be left behind."
We grant that there may be an increase in 2005, but the last few years, as we have documented, have hardly been devoid of big deals. It's only in comparison to the feeding frenzy of the late 1990s that the years 2001-2004 might have seemed a little tame.
The editorial, to its credit, sees some dangers in the deals. Not only is there increased pricing power in fewer hands, but there is also a slowdown in entrepreneurship, so there is no offsetting movement from a variety of up-from-nowhere companie. As the Business Week article puts it:
The downside of consolidation was less apparent during the M&A boom of the 1990s, since acquisitions and consolidations were balanced out by an equal amount of business formation and initial public offerings. New, homegrown companies such as Yahoo! Inc. and eBay Inc. became formidable competitors to existing businesses. This time, however, there's no sign of a similar surge of startups leavening the economy.
