Feeding Frenzy The aggregate value of communications-company consolidation deals--mergers and acquisitions--declined in 1997, dropping to $77.7 billion from 1996's $110.8 billion. But, according to Veronis, Suhler & Associates, author of the Communications Industry Transaction Report, if the mergers presently in the pipeline close (notably AT&T's bid for Telecommunications Inc., valued at $48 billion), 1998's total may already be looking at an all-time record. Why all this action? Business is good and money is cheap, VS&A says. Another factor: Prices are going up. An analyst once noted an odd thing about the market for financial assets, such as stocks or even whole companies: When the price tanks, customers run out the door; they can't sell falling stocks fast enough. Contrarily, when prices are marked up, investors race back in, afraid to miss a golden opportunity. (This, basically, is how "momentum" investing works.) One moderating effect may be the presence of financial investors, such as buyout firms. They purchase companies to fix and resell, and tend to be price-sensitive acquirers. Companies within the industry, strategic investors looking for "synergy," will typically pay more. In any case, as documented by VS&A, the game is still very much in process. --Alan Gottesman
(westendal pobox.com) is principal of West End Consulting.
THE GOTTESMAN FILE
Transaction records indicate that merger activity slowed last year, but 1998 seems headed
back into record territory.
Value of mergers No. of mergers Average deal
1993 $23,014 379 $60.7
1994 $38,762 582 $63.2
1995 $58,002 655 $60.7
1996 $110,823 636 $174.3
1997 $77,726 587 $132.4
Source: Veronis, Suhler & Associates. Dollar figures in million