Edited by John B. Davis and Wilfred Dolfsma
Chapter 20: Firms, Managers and Restructuring: Implications of a Social Economics View
Hans Schenk Introduction Since the early 1900s there have been ﬁve merger waves – three of which occurred after World War II – while at the time of writing Western economies are experiencing their sixth. The ﬁfth, which had its rising tide from 1995 to 2000, required worldwide investments of no less than about US$12 000 billion. With about US$9000 billion, US and West European ﬁrms took the lion’s share (for more details, see Schenk, 2006). At the time, by way of comparison, acquisition expenditures by US and European ﬁrms were about seven times larger than the UK’s annual gross domestic product. On average, they amounted annually to about one-ﬁfth of US GDP. Put diﬀerently, US and West European investments in mergers and acquisitions were equal to approximately 60 per cent of their gross investments in machinery and equipment (gross ﬁxed capital formation) and they easily outpaced those in research and development (R&D). Business enterprise investments in acquisitions were no less than about eight times higher than business enterprise expenditures on R&D. The sixth wave, while aspiring to similar numbers as the ﬁfth, has diﬀerent characteristics, however. Similar to the fourth wave (taking place during the 1980s), a disproportionately large number of its acquisitions are leveraged buy-outs (LBOs), or in more modern parlance, private equity leveraged buy-outs (PELBOs). Many, if not most, of such buy-outs do – or are supposed to – create value from demerging previously formed concentrations, indicating a sort of continuous stop–go process,...
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