Mergers and Acquisitions of companies are characteristic processes of business evolution.
There is a biological principle in the business world; company that does not grow, is a company that will disappear.
This fact forces companies to spend their profits in growing.
The growth of a company can come from itself , it can also come from the outside, so, merging or acquiring other companies.
In a crisis time, a certain number of companies are expected to close and, a, die. Nevertheless, statistics do not confirm this fact. Very few companies ever disappear, because they are bought by others at the moment in which their value falls.
Merger operations are directly linked to the evolution of companies. Merger and Acquisition cycles are more related to the evolution of interest rates than to other macroeconomic variables.
The greatest number of operations take place at times of stock growth. When interest rates drop, stock markets tend to rise for two reasons: first; the value of the shares grow when calculating their prices discounting future cash flows at a rate related to the interest rate. Second; as the bond market becomes less attractive, investors flock to the stock market, causing up raises.
In times of economic depression the number of mergers falls, due to lack of funding and investor uncertainty. Nevertheless;
Mergers and Acquisitions made in times of recession have, eventually, doubled profitability.
Mergers and Acquisitions made when the economy fades provide better profits than those carried out when the economy flourishes. In fact, in times of recession there are companies that, having difficulty to keep alive, they see their value decreased or see their shares trading lower in the markets;
Which translates into opportunities for healthy companies. Only companies with liquidity can face these mergers with warranties, which can turn into huge profits when the economy rises again..