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Merger and Acquisition Deal Making Hits Record High | January 2022

Published Date
Author OC Ferrell


Mergers and acquisitions (M&As) have skyrocketed, reaching upwards of $5 trillion in 2021. More than 62,000 deals were closed globally, up 64 percent year-over-year. Deal-making was fueled by an increase in economic confidence and pressure from investors for growth.

Companies of all sizes can achieve growth by expanding their operations, often by developing new products or selling current products to new groups of customers. This growth, when carefully planned and controlled, can be beneficial to a firm and ultimately help it reach its objectives. But companies also grow by merging with or acquiring other companies.

What is a merger?

A merger is when two companies combine to form a new company. For example, Discovery and AT&T’s WarnerMedia unit struck a $43 billion merger deal. The merger, once finalized, will form a new publicly-traded company called Warner Bros. Discovery. The government sometimes scrutinizes mergers and acquisitions to protect customers from monopolistic practices. The Discovery-WarnerMedia merger received a green light from the European Commission and expects to have a decision from U.S. regulators in mid-2022.

What is an acquisition?

An acquisition occurs when one company purchases another, generally by buying most of its stock. The acquired company may become a subsidiary of the buyer, or its operations and assets may be merged with those of the buyer. For example, Oracle, a cloud applications company, acquired Cerner, a provider of digital information systems used in hospitals and health systems, for more than $28 billion, the company’s biggest acquisition to date. Cerner will become its own dedicated unit within Oracle.

Why are M&A deals on the rise?

“Megadeals,” deals exceeding $5 billion, exploded last year, but so did small and midsized transactions. According to a PwC outlook report, M&A deals surge after an economic downturn due to access to capital. Many companies are making deals in response to changes in consumer demand as a result of the COVID-19 pandemic while others aim to improve digital capabilities.

Mergers and acquisitions can boost corporations’ stock prices and market value, which benefits stockholders, and enhance a company’s ability to compete with foreign competition. Additionally, companies that are victims of hostile takeovers generally streamline their operations, reduce unnecessary staff, cut costs, and otherwise become more efficient with their operations, which benefits their stockholders whether or not the takeover succeeds.

However, not all deals are beneficial. Mergers have the potential to hurt companies because they put managers in a position to focus their efforts on avoiding takeovers rather than managing effectively and profitably. Some companies have taken on a heavy debt burden to stave off a takeover, later to be forced into bankruptcy when economic downturns left them unable to handle the debt. Mergers and acquisitions also can damage employee morale and productivity, as well as the quality of the companies’ products.

Many M&A deals are beneficial while some have had damaging effects for the companies and their stakeholders. PwC predicts the surge of deals will continue in 2022.

In the Classroom

This article can be used to discuss mergers and acquisitions (Chapter 4: Options for Organizing Business).

Discussion Questions

  1. What is a merger? An acquisition?
  2. Why are mergers and acquisitions on the rise?
  3. Research the top M&A deals of 2021 and select one. Do you think this deal will be beneficial to stakeholders in the long run? Why or why not?

This article was developed with the support of Kelsey Reddick for and under the direction of O.C. Ferrell and Linda Ferrell.

Sources

Cerner, "Oracle Buys Cerner," December 20, 2021, https://www.cerner.com/newsroom/oracle-buys-cerner

Linda Saigol, "Global Deal Making Hits Record High at $5.8 Trillion," Barron's, December 31, 2021, https://www.barrons.com/articles/global-deal-making-record-high-2021-51640960224 (accessed January 4, 2022).

PwC, "Deals 2022 Outlook," https://www.pwc.com/us/en/services/deals/industry-insights.html

"The Deals of the Year," The New York Times, December 18, 2021, https://www.nytimes.com/2021/12/18/business/dealbook/deals-of-the-year.html

About the Author

O.C. Ferrell is the James T. Pursell Sr. Eminent Scholar in Ethics and Director of the Center for Ethical Organizational Cultures in the Raymond J. Harbert College of Business, Auburn University. He was formerly Distinguished Professor of Leadership and Business Ethics at Belmont University and University Distinguished Professor at the University of New Mexico. He has also been on the faculties of the University of Wyoming, Colorado State University, University of Memphis, Texas A&M University, Illinois State University, and Southern Illinois University. He received his Ph.D. in marketing from Louisiana State University.

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