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Coverage of merger and takeover activity fills a large proportion of business reporting in today’s media. Mergers occur more frequently in certain industries compared with others. Mulherin & Boone (2000) outlined the variation of merger activity by industry in the 1990’s; approximately half the businesses in industries such as oil and gas, banking and telecommunications were involved in merger activity compared to less than 10% in the construction, newspaper or shoe industry. This essay discusses the factors which control the differences in frequency of mergers across industries and relates general findings to the banking industry which has experienced much merger activity over the last 40 years. Mergers are distinct from takeovers in that mergers involve two or more companies combining to form a new business entity whereas a takeover or acquisition involves one business buying another business (Gaughan 2015). To avoid unnecessary complication, all mergers and takeovers in this essay are referred to as mergers and the findings are derived from US and European industries.

Mergers come in waves

An established observation by empirical researchers is the presence of defined periods of general increased merger activity known as waves (Mitchell & Mulherin, 1996). Researchers highlight 6 distinct waves traced from the beginning of the 20th century to present day (Gaughan, 2015). The 3rd, 4th and 5th waves occurred during the 1970s, 1980s and 1990s respectively. Mitchell & Mulherin (1996) observed that mergers in these distinct waves cluster by industry. Merger activity in a particular industry will tend to be more active a narrow range of time such as a 5 year to 10 year span. There is limited overlap in the types of industry where mergers are most common when comparing mergers in each wave. For instance, in the 3rd wave mergers were most common in the mining, real estate and oil & gas industry, whereas in the 4th wave mergers were most prevalent in the oil & gas industry, textiles and manufacturing. In the 5th wave the highest frequency of mergers occurred in the mining, media & telecom and banking sectors. As an indicator of typical merger growth during a wave, at the height of the 4th wave there were 3336 registered mergers in the US in 1986 compared with 1889 in 1980 (Gaughan, 2015). The sixth wave of mergers occurred between 2003 and 2007 with quite similar frequency distributions across industry types compared to the 5th wave with the healthcare being a new prominent sector of increased activity (Alexandridis, Mavrovitis & Travlos, 2012). In 2014 the industry with the highest global value for mergers was media & telecommunications, followed by healthcare and energy (Statista 2015).

Industry clustering in mergers is linked to a variety of reasons referred to as ‘shocks’ by researchers (Andrade, Mitchell & Stafford, 2001). Shocks are sudden external changes that cause merger waves that affect whole industries such as variations in economic activity, technological change or government deregulation policy (Kaplan, 2000). Scholars refer to the neoclassical hypothesis that states once a shock occurs to an industry’s environment, the assets in that industry are reallocated through mergers and partial-firm acquisitions. Managers in certain businesses simultaneously react and complete for the best assets available (Harford, 2005). Economic recessions can cause shocks across many industries as some firms that