Consolidation is the new trend

Mergers and acquisitions are the new trend in business. As mentioned by two earlier bloggers, SBC recently acquired AT&T. Proctor and Gamble has announced plans to purchase Gillette for $57 billion. Additionally, Sprint and Nextel just last month joined for around $35 billion. Why are so many big mergers/acquisitions occuring? The main reason for consolidations on a general level are the economies of scale which they create. If you take the assets of two companies and put them under the management of one company, the average management cost decreases. Also, the answer is in part due to the "American Jobs Creation Act, which gives US companies a one-time repatriation of dividends from overseas if they will be used to create domestic jobs, go into research and development or capital expansion, or be used in acquisitions." Additionally, foreign companies are looking to take advantage of the weakening dollar, which may lead to foreign purchases. Whatever the reasons for the consolidations, the implications are clear. For executives of these companies to be willing to expand in such leaps indicates that they at least see a bright economy in the near future; they would not make such large investments if they were expecting a weak market. The information for this post can be found HERE.

Apart from the information from the website, I have learned in my finance classes of how this is true in the banking industry as well. The market has been saturated with different banking companies, and it has become common for towns even as small as Marietta to have four or five different banks. Part of the result of such a large number of competitors is the mergers and acquisitions that are becoming so common today.