Banks Reviving M&A Teams

Since the dotcom bubble burst, it has been a tough time for merger and acquisitions on Wall Street. Many firms broke up their M&A teams, putting the senior people in industry specific groups like healthcare where their advice was not targeted on takeovers. Lately, though, that is changing -- Credit Suisse First Boston has revived its M&A group, and Goldman Sachs is toying with the idea. They had better hurry.

M&A, like most other financial activities, is tied closely to the economic cycle. There are some periods when it is a genuine positive for the market, and there are other times when it is counter-productive. The US is entering a phase when M&A will bring real benefits to the entire economy.

Capitalism is not, contrary to textbook assertions, efficient in resource allocation -- it makes mistakes. Markets overshoot prices, businesses over invest, and then comes the day of reckoning when those who have the wealth buy out those who squandered it. Consolidation is a self-correcting mechanism, and the nation is at the point where there are those with wealth to invest, and there are those whose operations have been proved unproductive.

For the next couple of years, M&A will be a useful tool in adjusting corporate America to the new business conditions. The banks that operate M&A teams will most assuredly profit handsomely from this phase. But when the conditions that make consolidation sensible business practice cease, those with M&A teams will discover that there is a political dimension to their existence. These teams will continue to operate whether M&A activity is economically useful or not.

Four to five years out, M&A will have run its course, the profits will have been booked, and there will be careers in the field that should move on. They won't, because no one wants to break up the winning team. And then, bad mergers like AOL and Time Warner will become more likely, and M&A game will become a bubble itself again. History repeats itself, and economics is the dismal science. Which makes economic history dismal repetition.


© Copyright 2004 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.


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