Putting Globalization and Concentration in the Agri-food Sector into Context

Current Agriculture, Food & Resource Issues

Industry

Convergence Geographic Roll-

Figure 2 Rationales for merger and acquisition activity, 1997-1999

These data are from all U.S. M&A deals between 1997 and 1999 over U.S. $ 500
million, where acquiring and acquired companies or divisions could be identified by four-
digit SIC code. In total, 1036 deals were analyzed.

Source: Bower, J.L. 2001. Not all M&A are Alike and That Matters. Harvard Business Review
March: 92-101

meets targets, thus forcing managers to continually search for acquisitions to satisfy
market expectations. Financial markets and managers also tend to operate in cycles. When
cash is readily available M&A activities increase dramatically, a trend obvious in 1999
and early 2000. High stock prices fuel this activity, as firms pay for acquisitions with
overvalued stock. Frequently, the first big mergers in an industry will accelerate the pace
of merger activity, as companies scramble to keep pace with competitors. Mergers and
acquisitions become part of the market psyche (Ghemawat and Ghadar, 2000).

Key Drivers in Large U.S. Mergers and Acquisitions

Bower (2001) examined U.S. mergers and acquisitions over $500 million in value
during the period 1997-1999. The analysis revealed that for these large transactions,
overcapacity and product-line extension were the major reasons for the deals, but
convergence, R&D and investor motivation were also factors (figure 2). If smaller deals
were examined, the distribution of motivation would change, with almost certainly more
emphasis on R&D. Few R&D mergers reach the $500 million value level.

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