RSI Industry Trends

The Merger and Acquisition Takeoff November 1st, 2010


The Merger and Acquisition Takeoff

The past couple of months have proven to be an important and critical time for many large business deals. Even in the midst of today’s economy. There is still a positive movement towards recovery within large businesses, reflected by the numerous M&A transactions. In years past, the summer months generally show signs of slower progress for these types of deals. Although this is usually the case, this year in particular has been an extremely successful point in time for merger and acquisition transactions. There are still many M&A talks currently surfacing, like the Lions Gate/MGM and the Avon/L’Oreal proposed offers. This last August, transactions amounted to over $200 billion. Among the prevalent and most recent M&A transactions were the merger between United and Continental Airlines and the acquisition of McAfee Inc. and Infineon Technologies by Intel for more than $7.5 and $1.4 billion dollars respectively.

The United and Continental Airlines Merger The merger between United and Continental Airlines totaled roughly $3 billion dollars, which created the world’s top airline. As Matt Jarzemsky of The Wall Street Journal stated, “The parent of the two airlines was formed on October 1st, creating the world’s largest carrier by traffic as the sector is benefiting from rebounding demand.” This is an extremely key move for the airline industry due to the fact that M&A deals generally do not occur while the industry is at a financial halt. This is both good news and a positive outlook for today’s economy because corporate leaders tend to shy away from making M&A deals like these when they are not confident in investing in the economy.

Jeff Smisek, eleven days into his position as chief executive of the world’s largest airline, United Continental Holdings, faces many challenges in trying to satisfy the various needs of different parties. As Susan Carey of The Wall Street Journal reported, “In Smisek’s favor is an improving economic atmosphere and new paths for increasing revenue by cooperating with United’s foreign airline partners in the Star Alliance marketing group.” This contract came at a somewhat unstable time for the airlines, yet it should put these two companies and their passengers in a more comfortable and reliable place.

The Acquisition of McAfee Inc. and Infineon Technologies by Intel Like the airline sector, the technological industry has also been producing similar, high profile deals. Intel has been extremely busy for the past couple of months in acquiring major companies outside of their immediate industry. Intel believes that today’s approach to security does not completely address issues like cyber threats, along with mobile and wireless devices, TVs, cars, and medical devices, which is why they decided to buy McAfee Inc. As Don Clark of The Wall Street Journal stated, “Intel stressed how chips from the Infineon unit could deliver wireless internet connections to other products, including laptop computers, tablet-style devices, televisions, and other consumer electronics products.” Intel saw the need to buy-out these two companies because it would not only benefit their company, but also bring convenience to the general public. As Jon Erensen, an analyst from the market research firm Gartner Inc., explains, “Intel is going all-in on wireless.” Many analysts and researchers believe that the acquisitions by Intel and the United/Continental merger are optimistic signs for the economy because these deals show confidence from the “big businesses” in a variety of industries.

Forecast for the Future With the increase in these deals comes the increase in sanguinity for the future of our economy, which is important for the boost in both spending and hiring. This optimistic view is led by the expected increase in M&A activity in the near future. Many other industries are participating in transactions similar to the ones mentioned above, which is a central reason as to why people have a new confidence to invest in companies like United Continental Holdings and Intel. This building assurance, for both the United States and the rest of the world, is the foundation for a more secure future.


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