Chapter 5: Historical Trajectory of M&A

Those who do not remember the past are condemned to repeat it.

This dictum of Spanish philosopher George Santayana was popularized by British statesman Winston Churchill, although one of Churchill’s original history’ quotes is equally profound:

The farther backward you can look, the farther forward you are likely to see.

The high relevance of these quotes to the book’s core makes them more pertinent than what their universal significance implies. History is replete with scores of perceptive reference points to help one unfold the essence, credence, tenets and intricacies of mergers and acquisitions (M&A), whether seasoned practitioners or budding professionals, veteran academicians or rookie students, business owners or advisors.

Before we look at the world’s top M&A deals, we must examine the M&A trajectory over the years to trace its origins and evolutionary path so that we are better prepared to cope with, nay capitalize on, the onslaught of technological dominance going forward.

The oldest known standalone mergers – both landmark developments – were largely remedial initiatives to resolve trade conflicts and consolidate trading power for the reigning industry heavyweights. It is pertinent to note the circumstances of these milestone mergers:

1. The 1708 East India Company merger, saw the original East India Company integrating with the English Company Trading to the East Indies. The latter was a parallel setup floated in 1698 under a state-backed indemnity of £2 million. However, the stockholders of the original company subscribed for shares worth £315,000 in the new body and assumed dominant control. The ensuing trade conflicts between the two bodies ultimately made way for the merged entity which was rechristened the United Company of Merchants of England Trading to the East Indies, better known as the Honorable East India Company (HEIC). Although HEIC initially traded in commodities such as indigo, tea, salt, and cotton, it eventually sidelined its commercial objectives and virtually ruled India through military action and administrative control.
2. In 1821, the North West Company merged with the Hudson Bay Company. Both these prominent Canada-based fur traders had long indulged in cut-throat competition that turned hostile and violent over time. The merger was effectuated through a massive asset pooling exercise, and the new setup was rechristened Hudson Bay, which became the world’s largest fur trading company of the given era.The vibrant economy of the United States largely led the global M&A evolution, as it was on American soil that mergers were first explored as a business arrangement. This M&A trajectory can be best studied in terms of waves; each wave mirrors the ripples caused by differing economic, political, and legal factors of the respective time span. The defining attributes of each wave are summarized below:

First Wave M&A (1897-1907)

1. Mergers of this era were characterized mainly as “horizontal mergers”, where companies from the same industry
   consolidated to form a power sector.
2. These mergers were the outcome of the recession and heightened economic loss caused by the Great Depression of 1883; consolidation thus became necessary for an industrial and business resurgence.

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