In recent months, there have been several mergers and acquisitions in the news. One great example of this is Morgan Stanley’s acquisition of E*Trade. Another is the merger between the parent companies of traditional rivals Variety and The Hollywood Reporter. The truth is that whenever there’s a recession, we’ll see this pattern.
There are several reasons for this. Recessions are often times of consolidation. Consider the way 2020 has looked. Stocks have been very up and down. Some companies have had real recoveries. Others have been more or less left behind. For many, it looks like a good time to sell. At the same time, financially healthy companies look around and see that the time is right to buy. They can swallow up rivals or shore up their skills for lower than normal prices.
For example, Morgan Stanley is one of the most venerable names in finance. The company was originally formed in 1935. They’ve been a huge force in investment banking ever since. E*Trade, by contrast, is a West Coast company founded in the 1990s. Their innovation was to marry finance and technology earlier than most other companies thought to do so. E*Trade’s Silicon Valley roots add something newer and edgier to Morgan Stanley. Meanwhile, E*Trade’s stock has not been performing particularly well. Shareholders were ready to sell.
Penske Media’s recent merger with The Hollywood Reporter is, in many ways, similar. Jay Penske knew The Hollywood Reporter was losing money. As the owner of Variety, he knows how to do entertainment news. But Penske also knew that The Hollywood Reporter’s distinctive style and brand have value. One less frequently mentioned aspect of this deal is that Billboard is included in it, having shared a parent company with THR. Variety has long been a big name in movie and TV news. But this merger gives Penske a much larger presence in the world of music, too.
During recessions, the focus is often on what businesses are failing. But recessions are actually all about two things: increased concentration and new innovations. Established companies consolidate during times like this. New entrepreneurs will also find gaps in the market and create businesses to respond to them.