Merger Mania: A Ticking Time Bomb

Early this year, holding company SunTrust published an article predicting that the persistent low growth of the US economy, combined with the vast reserves of cash being hoarded by American corporations, was likely to propel a high number of mergers and acquisitions. As we head into the second half of 2017, this prediction has already been unquestionably validated. The Institute for Mergers, Acquisitions, and Alliances (IMAA) forecast that there would be over 14,500 transactions announced by the end of this year, the highest number since 1998.

The IMAA’s data also indicate that, although the number of transactions has continued to grow since 2015, the total value of these acquisitions dropped by 25% in 2016, and is set to decline further by the end of this year. In other words, on average, a higher number of lower value companies are being purchased and merged than in previous waves of mergers. The Financial Times admitted that the growth of mergers, in an increasingly uncertain global atmosphere, is driven by the fact that “many companies face poor organic growth prospects, forcing them to consider buying rivals or expanding in new territories.”

For Marxists, this phenomenon is not merely a fleeting phase in which a few companies are going through a rough patch, but rather, reflects an organic process within capitalism, and is laying the basis for another serious global economic slump.

In the first chapters of Imperialism: The Highest Stage of Capitalism, Lenin outlined the fundamental laws of motion that predominate in the era of monopoly capitalism, which continues to this day. As an example, the US economy is dominated by a handful of monopolies, with the Fortune 500 companies representing two-thirds of US GDP. The decisions taken by the CEOs and boards of these companies directly affect the wages and quality of life of hundreds of millions of working class people. Finance capital predominates over the rest of the economy and, far from playing a productive role in the economy, is reduced to reckless gambling and speculation. And of course, we still witness periodic crises of overproduction. This is because the workers cannot purchase back all the commodities they produce and which the capitalists have invested in, which leads to oversaturation of the market, falling profits, and the need to cannibalize and concentrate capital in order to present shareholders better perspectives for future growth.

But mergers are not always a sure-fire bet. On the contrary, they only add to the powder keg of eventual economic implosion. Even if we assume that those who sell their companies don’t misrepresent their liabilities and profitability, mergers are still a gamble from a profitability perspective. As a manager of the hedge fund Gullane Capital LLC observed, “About 70% of mergers don’t work out the way they are supposed to.”

What is guaranteed is that the working class will be made to pay for these mergers, whether they lead to increased profits for the capitalists or not. Mass layoffs are frequently the immediate result of such mergers. This year, Verizon laid off 2,100 people after it merged AOL and Yahoo under its ownership. Since 2008, over 143,000 jobs were cut in the pharmaceutical sector due to mergers. In late August, Amazon purchased Whole Foods, just months after it debuted its vision of cashier-free convenience stores to the world. While for now, Amazon denies any layoffs are in the cards, it has already put massive pressure, not only on Whole Foods workers but on the over one million workers who work in supermarkets across the US.

Even if you don’t work for a company that is undergoing a merger, you could still be affected. The New York Times reports that over 82,000 homes will now be owned by a single “institutional landlord,” as private equity owner Blackstone Group’s Invitation Homes and Starwood Waypoint Homes announced in early August they will be merging, again trying to drive up profits. Invitation Homes borrowed $1 billion from Fanny Mae and purchased foreclosed houses at rock-bottom prices after the 2008 crisis, profiting handsomely by charging unaffordable rents to the working poor.

This is the system we are subjected to—a system in which the bosses are compelled on pain of extinction to recklessly merge, while the working class is forced to pick up the tab and clean up the mess. This is just one of the reasons for the growing social and political instability all over the world. But there is nothing new or accidental in this. This is the world that Lenin analyzed a century ago and is an inevitable result of capitalism.

And while much remains the same, much has also changed since Lenin penned his classic analysis. The working class today is objectively in a stronger position than ever to expropriate the increasingly concentrated and consolidated wealth of the capitalists. These gargantuan entities must be nationalized under democratic workers’ control as part of a rational plan of production. A socialist society is not only rational but urgently necessary. To achieve this in our lifetimes, the working class must set about the task of building a leadership that can win both political and economic power. This will not be easy but is more attainable than ever. Join the International Marxist Tendency, and let’s make this happen.