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Are Corporate Takeovers a Thing of the Past?


During the 1980s, I can recall a time when it seemed as if everything you heard about corporate America were reports on corporate takeovers.  The evening news was saturating the airwaves with key terms like: leveraged buyouts, hostile takeovers, mergers and acquisitions, and the like.  There was so much news about it that Hollywood became the social media commentators with movies like, “Other People’s Money,” “Wall Street,” and my personal favorite, “The Secret of My Success.”

So what has happened since then?  Have takeovers become a thing of the past?  Or has Hollywood and the news media simply moved on to other pressing corporate/social issues.

Corporate takeovers are very much alive and well.  In a recent publishing by Bloomberg those leading the way in corporate buyouts are the Carlyle Group, the second-largest buyout firm in the world, and Bain Capital LLC which “announced three takeovers of public companies worth a combined $8 billion, almost half the volume of all buyouts in last year’s fourth quarter…”  The article goes on to say that, “[s]tocks outside the financial industry are trading at the most attractive levels ever when comparing cash flow and corporate bond yields, making companies receptive to approaches and deals potentially more lucrative for buyers” (Kelly, Alesci & Marcinek, Nov 3, 2010).

Large buyouts, companies with too much capital in this current state of economy, how is this so?

Analyst Dirk Hofschire, VP of Fidelity Investment Market Analysis, Research and Education Group sums up the factors on how US companies in the recent years have increasingly large cash levels this way:

With strong cash flows filling the coffers, corporate cash levels in non-financial companies have hit $1.5 trillion, and, as a percentage of assets, stand at the highest level in more than four decades.  Some of this cash has been plowed into capital expenditures, with business investment in technology and other equipment, providing the largest boost to GDP growth so far in 2010 (Fidelity Viewpoints, Sept 22, 2010).

Additionally Hofschire goes on to state that in relation to how companies actually allocate cash, that in contrast to possessing high levels of capital, corporations have been under-investing and “extremely slow to hire back new workers.” These factors further solidify past indicators on corporate takeovers.  Starting from 1956 when the practice of mergers and acquisitions began to fully surge, the number of company acquisitions greatly increased.  Furthermore, historical data shows that past investment “bubbles” are highly connected to acquisition activity with the most recent being in 2005 (Baker, 2009; Bruner, 2004)

Also, another factor that I would like to mention in respect to corporate buyouts; whether hostile or otherwise is that management of the targeted company is not blind-sided by this action.  Big bad private-equity wolves are not cunningly creeping around the small and meek private or publicly-held company who is just sheepishly grazing in the corporate fields.  I know a bit strong but hopefully you got my point.

Takeovers can only occur to companies where management lacks efficiency.  Bad management coupled with low interest rates (for the buyout firm), low stock prices and low cost of capital are more reasons to associate the increase in companies being targeted for takeover.

While the coverage may have decreased, the news and film reels continue to portray an image of corporate prowlers, but, company mismanagement could be viewed as more of the villains than the act of buyouts is depicted.

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