M&A Is Back -- But This Time, It's Different - Knowledge@Wharton

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M&A Is Back -- But This Time, It's Different
Published: November 24, 2009 in Knowledge@Wharton
   



If the past month is any indicator, acquisitions are not only thawing but heating up. In October, Comcast made a bid to merge its operations with NBC Universal to create a cable programming giant. In early November, Kraft Foods announced a $16.5 billion bid for U.K.-based chocolate maker Cadbury -- also being sought by confectionery companies Hershey and Ferrero. The activity spans several sectors, including technology, with Hewlett Packard's agreement to purchase 3Com for $2.7 billion, and Google's $750 million acquisition of mobile advertising startup AdMob. What's behind this shopping spree, and is the trend likely to continue? Knowledge@Wharton spoke with Wharton management professor Larry Hrebiniak and finance professor Pavel Savor about M&A strategy in a post-recession environment.

An edited transcript of the conversation follows.

Knowledge@Wharton: The M&A market seems to be heating up. Does this surprise either of you or does it make sense in terms of where the economy is?

Larry Hrebiniak: I am not surprised. You could see it heating up. We have had a terrible recession and during that recession, what happened? Companies hunkered down. They saved money. They cut costs. They laid off people. They didn't have many opportunities to spend, and they just tried to pull back. The recession created a kind of forced savings. A lot of big companies generated cash and held on to it. Now that things seem to be perking up, it is like, "Let's make a move -- quickly. Let's start using that cash. We need growth. Organic growth is going to be too slow. We are under pressure to grow."

And what's the fastest way to grow? Mergers and acquisitions. Take that cash you ...

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