Worldwide Merger & Acquisition: Business or Economy Driven?

Updated: Jul 19, 2020

Almost all the industries have same kind of phenomenon: skewed to the right with a positive trend (see here). No wonder, technology, being the hot cake, got most of its part! More than 65 companies were acquired by Facebook alone (see here). JP Morgan told us in January 2017 that likewise 2016, same phenomena would continue in 2017 and it happened. In almost all the industries, 1) small companies are acquired by the big and 2) big companies are merging. Why this is happening?

Case-1: An small entrepreneur starts its business targeting a niche. As Peter Thiel described in his best selling book 'Zero to One' the benefits of creating monopoly business (video book summary), some entrepreneurs really win over their competitors in the market and create a monopoly businesses. A small company may be acquired by a big one basically for two reasons: 1) the big one wants to eliminate its future competitor and 2) engulf a big chunk of business growth with better cash flow.

Case-2: On the other hand, big companies can marge with one another again primarily for two reasons: 1) to get rid of profit sharing and 2) to have more exposure in terms of market share; sometimes monopoly.

Whatever the cases are in 1 and 2, where does the great 'Perfect Competition' prevail then if all are either acquired or merged? By these M&A a perfect competition market turns to either Oligopoly or Monopoly! You can get another theoretical perspective from here: There Is (Almost) No Such Thing As Perfect Competition. Is this the reason for which such M&As are taking place?

Well, for that we need to go a bit deeper may be! In this discussion another term peeps up: Free Market. Since the very assumptions of Free Market Economy require the 'no restrictions' and 'a large number of suppliers' (see here), it already gives the assertion of a 'perfect competition' in the market i.e. a free market cannot be conduced without perfect competition in place! The concept is: there cannot be free market in a monopolistic or oligopolistic environment. Simon Jenkins in his article, Name, shame, blame the bankers, if you like. But they're the wrong target, supports the notion that has been described above; in his words: "Nobody but a fool believes that a free market in anything, left to its own devices, will tend to perfect competition. Economic history attests that it tends to monopoly." This claim was criticized by Philip Salter from Adam Smith Institute with no empirical proof whatsoever (see here). A good read can be: Why Free-market Economics Is a Fraud.

Due to the presence of Perfect Competition and Free Market Economy, following phenomenons are being observed throughout the world:

  1. The big acquire the small

  2. The big are merging

  3. The big eliminate future competition by acquiring potential competitors

  4. The big ensure big chunk of market shares; sometimes create monopolies

  5. The big take control over the total value chain gradually

  6. The big then focus on outside of native market and utilize the free market

  7. The big become so big gradually that they encroach other sectors of economy (how these big companies are taking control over economy which traditionally were not seen: see here)

With a very fast pace, the whole economy is being marched towards a point where business firms are going to take control of the economy i.e. they may become the government one day! Nick Srnicek, lecturer in digital economy at King’s College London, wants google, facebook and amazon to be nationalized (have a look into this: We need to nationalise Google, Facebook and Amazon. Here’s why). And the whole structure is being fueled by the system of capitalism: capital accumulation. So Worldwide Merger & Acquisition: Business or Economy Driven? What do you think?

TAPSD Publications

Writer: Mr. A. Bhuiyan, Experienced Change Management Professional

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