In the world of business, mergers and acquisitions (M&A) have become a significant force driving corporate consolidation. A series of mergers since 2015 has left many industries dominated by a few global giants.
The semiconductor, health care services, and media industries have seen the most consolidation. This consolidation wave has been driven by a combination of cheap money and balance sheets boosted by a strong stock market.
Merger vs Consolidation
Before we delve deeper, it’s essential to understand the difference between a merger and consolidation.
In a merger, two separate companies combine to form a new, jointly-owned company. Both companies legally dissolve and integrate their assets and liabilities into the new entity.
In contrast, in a consolidation, one company acquires the assets and liabilities of another company, which is then dissolved. The acquiring company remains intact.
Benefits and Drawbacks of Consolidation
Consolidation brings benefits of scale but also can draw regulatory scrutiny. It delivers economies of scale but can make it harder for companies to react nimbly to new competition or shifts in technology.
Merged companies may also find themselves in the crosshairs of regulators concerned about concentrated market power.
Impact on Different Industries
The surge in big mergers has left its mark across a range of industries, especially semiconductors, health care service providers, and media. The heavy deal-making has created dominant players with tremendous influence over their industries and the broader economy.
For instance, the semiconductor industry is a prime example of consolidation over time. The number of top-tier players has shrunk dramatically since 20021.
In the health care sector, waves of mergers and acquisitions have already led to higher prices, and there is little evidence that they have resulted in efficiencies, reduced costs, and better care coordination.
The Future of Corporate Consolidation
Given the financial difficulty that many providers have suffered during the pandemic, this trend is likely to continue, reducing competition and increasing prices.
In light of this danger, Congress and regulators should take steps now to more fully assess the impact and curb those combinations that adversely impact payers and patients.
Conclusion
The trend of corporate consolidation through M&A is likely to continue, reducing competition and increasing prices.
Therefore, it is crucial for Congress and regulators to take steps to understand the impact of the consolidation and take actions that prevent combinations that will adversely affect the cost and quality of care.