Manipulating the Merger Mania

Corporate activity is one of the key influential factors on global stockmarkets

Underpinning this activity is the universal ambition of corporate management to enhance shareholder value. Providing an obvious investment alternative to internal growth, it is widely argued that M&A can enhance the value of core businesses by accentuating the strengths of separate entities, whilst simultaneously benefiting from the elimination of uneconomic duplication. Benefits such as economies of scale, improved competitive positions or substantial cost synergies are typically cited as the rationale for such activity. However, basic corporate survival quite often provides the impetus, as corporates attempt to counteract specific business threats or more general trends such as globalisation and deregulation.

Unconfined to any one industry, this boom has spread right across the corporate spectrum. Mega-mergers have proved a prominent feature in recent years, as premier players in sectors such as telecoms, pharmaceuticals, oil and banking strive to achieve greater scale.

Whilst it is dangerous to assume that the market will always applaud the merits of mergers, especially since such deals often fail to enhance value, undoubtedly, pulsations in the stock market will continue to emanate from M&A activity. The key to capitalising on this trend is not just to find, but pre-empt, the pulse.