DEFINITION of Merger Mania

Merger mania has become a catch-all phrase applied to periods of frenzied deal-making activity, often at the top of the merger and acquisition (M&A) cycle. It is associated with crazy prices being paid for some target companies using excessive levels of debt.


There have been several famous M&A booms on Wall Street. The term merger mania was coined in the 1980s leveraged buyout and junk bond boom, by one of the most notorious corporate raiders of all time, Ivan Boesky. Before going to jail in one of the biggest insider trading scandals of all time, he published a book titled, Merger Mania: Arbitrage: Wall Street's Best Kept Money-Making Secret.

Merger mania really refers to periods when deal-making becomes aggressive in one fashionable industry, or the whole market, and valuations lose touch with reality. Deals are made that destroy more shareholder value than they create. Historically, merger mania has been associated with executive vanity and empire building. During the merger wave of the mid-1950s to 1969, the "go-go years," 60% of all mergers were conglomerate mergers.

The boom in the late 1990s was a period of technology-driven merger mania, with tech and telecoms firms in the dotcom bubble accounting for 40% of deal-making activity. After 2000, and before the financial crisis, there was a rush into emerging markets and commodities, and a stampede into private equity buyouts. Many chain retailers, which were bought by private equity firms during this time of heady retail optimism, have fallen victim to the retail apocalypse because they were loaded up with unsustainable levels of debt.

Merger Mania Today

Today, mergers are meant to be driven by more strategic and economic rationales, as seen in the trend for spinoffs and cross-border mergers. But wise investors should always be on the lookout for the symptoms of merger mania. There have also been plenty of headlines about merger mania in the U.S. healthcare, media and tech sectors.

Thanks to easy money, and the potential for mergers to augment product development, there has been fierce competition for acquisition targets in these sectors during the post-financial crisis era. In the U.S., average purchase price multiples for buyouts rose to historic highs in 2018, valuations having recovered to levels seen at the peak of the last two global M&A booms, in 1996 and 2006.