Meet M&A — The enabler of Oligopoly Capitalism
This late version of capitalism is characterized by oligopolies in every industry. These are firms that are too large to fail. The key enabler of it all is M&A (short for Mergers and Acquisitions).
M&A activity is very instrumental in baking oligopolies.
We are living in an era that can be characterized as rogue capitalism due to the dominance and prevalence of monopolies and oligopolies within the global economy. For more on that, read the article below.
A Market of Monopolies — The Rogue version of Capitalism
What do you call a free market that is free for a few players to compete in and difficult for everyone else to compete…
M&A is an activity undertaken by Investment Bankers. They rake in big bucks undertaking such big feats of economic, legal, financial, and accounting unification. Consulting firms and advisory firms are also in the mix.
According to Ferhan Aytac and Can Kaya (CONTEMPORARY LOOK ON THE HISTORICAL EVOLUTION OF MERGERS AND ACQUISITIONS), the M&A market has gone through 5 waves. Each succeeding wave has been bigger than the preceding ones.
The value and number of deals have increased dramatically over the years, probably faster than the increases in World GDP.
Declines are temporary. It takes a couple of years before growth in value and volume pick up again.
Here is a summary of the 5 waves of M&As in the USA.
- First Wave — 1890s- industrial revolution. Consolidation for productivity & scale gains. General Electric, American Tobacco, and Standard Oil emerged in this era. This led to the establishment of the first true monopolies in certain sectors. Regulation (Sherman Act, Clayton Act) killed the first wave.
- Second Wave — 1916–1929. Oligopolistic rather than outright monopoly. More vertical integration as opposed to horizontal ones. The wave was halted by the Great Depression.
- Third Wave — 1960 to 1970. This was characterized by conglomerate types of mergers, where companies acquired others outside of their primary economic activity. This is the Age of Conglomerates. Regulation (Hart-Scott Act) halted the third wave.
- Fourth Wave — 1981–1989. Merger Mania. Remarkable size and quantity of M&A deals. Dominated by hostile takeovers. This wave created BigPharma, Big Airlines, and extended Big Banks.
- Fifth Wave — 1993–2000. Mergers went global. Markets opened up globally.
We are effectively in the 6th Wave. The mergers are like a creature that keeps on coming back. You can't kill it.
All of these waves have been enabled and powered by M&A teams. Wave after wave, what you can observe here is the inherent nature of firms within a capitalistic structure to join, be bigger, and be better. Of course, the idea is to be bigger and better. The result is not always the better that we want as people. It's better for the company itself. It gets more power. It gets more leverage on pricing, more leverage with the taxman, and can write laws and pass them on to lobbyists and politicians. The company wants to survive, outcompete, and dominate. But once the company dominates, it wants even more power to stop others from competing against it. It wants ultimate power.
The monopolistic wave was followed by anti-monopoly legislation which focused on horizontal integrations. The next wave then found ways around it by focusing on vertical integration. The laws played catch up and the next wave focused on conglomerates, side-stepping the horizontal-vertical criterion. The next wave even forced its way into mergers via hostile takeovers.
The creature called M&A finds ways to survive and reincarnate even when faced with a tough regulatory environment. Today, with all sorts of laws in place, M&A still thrives. In recessions, big firms swallow small ones, in booms, M&A peaks. So, all seasons are business seasons for M&A activity. The declines in the number of deals as economies enter recessions are not that remarkable.
Monitoring M&A activity is akin to “Live Monitoring” of the heartbeat of late-stage capitalism. It offers insights into how the machinery works. If capitalism is the Machine God, then M&A is the Engine Room (notably the M&A Data Room). This is where things happen. The desire to merge, swallow others, take over, and integrate is ever-present. M&A teams actualize that desire. It brings it to reality. M&A boffins got the magic that glues it all together.
It goes without saying that the bigger monopolistic and oligopolistic firms that characterize the global economy these days are not the ideal capitalism that we read in economic books. The reality is different from the textbook theory. This form of capitalism is rogue. Larger-than-life global gorilla firms wield so much power over both consumers and governments.
Some of these corporations are more powerful than nation-states. They are able to snap up new entrants, kill completion if they want, absorb it, or even incubate it for later consumption (allow it to grow before you swallow it). Some company execs are more powerful than government ministers. At least the big companies in various industries are not yet colluding cross-industry, for if they manage to do so, then they can effectively govern us in the outright sense of the word. Can we still describe whatever capitalism has morphed into as capitalism? Maybe it's still capitalism.
Should we blame Investment Bankers? Hell No?
Investment bankers are hated by many outside of Investment Banking. They are hated for many reasons, but only in rare cases are they hated for their economic role. They are hated for the huge salaries they earn, the toxic work culture they propagate, and just the general “I-am-better-than-you” attitude reminisce of spoilt rich kids that they exude.
Given that M&A gives rise to this oligopolistic version of capitalism, should we blame the bankers who originate and structure these deals? I say no. These are not the real problem. Their activity is primarily driven by demand. There is demand for their services. Yes, there are bankers who conjure deals out of thin air and force them on clients, by approaching clients with irresistible value propositions detailing benefits that can be harvested from a deal. However, by and large, most deals are conceived by clients, and M&A teams only close on the leads. For both BuySide and SellSide deals, it is clients who approach the bankers. Investment bankers provide a valuable service to companies involved in M&A.
Investment bankers earn a big fee because the service they provide is valuable to capitalism. As custodians and enablers of M&A activity, they act as enablers of late-stage capitalism.
Capture the Enabler
The transition from Late-Stage Capitalism to Post Scarcity Communism will require the skills of M&A teams in crafting globally owned corporations. In the guided transition that I envision, we will have to tolerate super-sized global firms as a reality due to the economies of scale needed to usher in abundance in certain areas of life.
Instead of having the super-sized global corporations existing as privately owned entities, we need them to exist as publicly owned corporations. Bear with me. Don’t kill me as yet. The distinction between public and private herein is not with respect to stock exchange listing. No! It is with respect to the human race. Currently, so-called public listed companies give you the impression that anyone can own them, without specifying that it's anyone who has the money to buy the shares on a stock exchange. Truly publicly owned corporations will be owned by everyone, whether they have money or not. That is the “with respect to humanity part”. The very first of these corporations will pave a way for ushering us into an Age of Abundance as they optimize for profit minimization rather than maximization.
But, first, we need those clever M&A guys to bring the pieces together. This is where M&A as an enabler comes in. This is why we need to capture M&A so that it enables us to forge the deals necessary to take private companies public, in the outright sense, and with attendant changes to shareholding and governance.
We should soon (I mean a decade or two) toast to the first Globally Owned Corporation.